QQQQ Stock or SPY Stock

Description: QQQQ, spy, stock, NASDAQ 100, S&P 500, technical analysis, trading system, investment, trader, QQQQ stock, SPY stock

One of the most common questions new traders face is what to trade. As an example they could ask what to choose for investment, QQQQ (Nasdaq 100 index tracking stock) or SPY (S&P 500 index tracking stock).

Sometimes novice traders may run into misleading conclusion that if you trade SPY you could make more on each percent of the profit, simply because SPY is two-three time more expensive than QQQQ. Yes, if QQQQ stock is traded at $40 per share and SPY stock is traded at $100 per share then on each percent of QQQQ profit you would make $0.40 on a QQQQ stock and on each percent of SPY profit you would make $1 on one SPY share. However, it is not as simple as it looks like.

In real trading a trader operates by a portfolio. For instance, if a trader intends to invest $1,000, then in the same case when QQQQ stock is traded at $40 per share and SPY stock is traded at $100 per share this trader would allocate $1,000. This trader would be able to purchase (invest into) 10 SPY shares or 40 QQQQ shares. Now, if this trader receives 1% profit in both cases it is going to be $10 which is 1% from invested $1,000. So, it does not really matter whether you receive $1.00 profit per share on 10 shares or you receive $0.40 profit per share on 25 shares. The result is the same – you will pocket the same profit.

As you see the question "What gives bigger profit QQQQ or SPY?" is wrong. A trader should not select trading vehicle on the assumption that this stock is more profitable than another stock. The first and the most correct question is what do you know the best? In the current example with a choice between QQQQ and SPY stocks the question could be very simple: "What analysis provides you with better result? Is it S&P 500 analysis or is it Nasdaq 100 analysis?". If you are more familiar with S&P 500 index technical analysis then you should definitely choose SPY for investment. Yet, if you feel more confident by analyzing Nasdaq 100 index then the correct choice would be selection of QQQQ stock.

If your technical analysis or your trading system generates similar result for both QQQQ and SPY stocks then you may go into deeper analysis of what to select for investment. The second and usually the last question is where you would pay fewer commissions? Those are all the questions that should be asked when a trader selects a stock for investment.

 

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