Qqqq or Spy

 Before even starting active trading, it is important to understand your expectations wich should help you in selecting trading vehicle. In this article you will find several question that recommended to consider before becoming an active trader.

 One of the most common questions when people come to the stock market is what to trade. QQQQ and SPY stocks (by average daily trading volume) are the most traded stocks in the world and in majority situation, this question is narrowed to a choice between these two stocks. Actually, by going further, it is not even about these two stocks but rather about the benchmark indexes these stocks track: Nasdaq 100 and S&P 500 indexes.

There are several factors that a novice trader considers in the process of choosing what to trade. The first question is how much money is he or she willing to allocate for trading. The second question is what analysis is he or she more comfortable with. Would it be Nasdaq 100 index analysis or S&P 500 index analysis? The third, not the last, question is about commissions that has to be paid to a broker.

The first and the third questions are tied together. Commissions size and funds allocation mainly define trading strategy and type of technical analysis that could be used to generate trading signals. If a trader has only $1,000 in a pocket and this traders pays $10 commissions for a transaction, then he or she spends $20 in commissions per trade (one transaction to open a trade and one transaction to close a trade). From these numbers the trader has to consider a trading system that would generate in average bigger than 2% profit per trade. At the same time since QQQQ is more than twice cheaper than SPY, a trader with $1000 portfolio may prefer trading QQQQ simply because more QQQQ shares could be purchased.

On the other hand a trader with big portfolio, whose commissions greatly depend on the number of traded shares, may prefer to trade SPY because for the same invested amount fewer shares could be traded and respectfully fewer commissions would be paid.

Yet, the main question is still the same, what analysis delivers better result. If a trader feels more comfortable with analysis of the Nasdaq 100 index then QQQQ is preferable investment goal simply because better returns could be expected. If a trader's technical analysis of the S&P 500 index delivers better results, respectfully SPY stock could be recommended for investments for a potential of receiving higher profit.

Overall, before starting to trade a potential trader has to define how much is he or she willing to dedicate for trading and based on it select type of technical analysis he or she will be using. After that, he or she has to find a trading vehicle that provides best result based on the chosen technical analysis.

Article Tags: Technical Analysis

Source: Free Articles from ArticlesFactory.com

ABOUT THE AUTHOR