How to trade the NASDAQ 100: Everything you need to know
The NASDAQ 100 (NAS100) stock index is one of the largest and most famous in the world. Hosting the US businesses with largest capitalisations and growth prospects, including the likes of Apple, Microsoft and Alphabet, the NASDAQ 100 is naturally a gauge of sentiment within the US technology sector and growth stocks in general.
If you're a would-be investor who wants to trade indices or CFDs (contract for differences) in one of the most fast-paced and exciting global markets, the NASDAQ 100 is a potentially lucrative choice.
In this guide, learn the fundamentals of what the index is, what drives price movements, the benefits of trading it, plus strategies on how to trade the NASDAQ 100 in a way that drives positive results.
What is the NASDAQ 100?
The NASDAQ 100 is a stock index that comprises the 100 most actively traded companies listed on the New York's NASDAQ (National Association of Securities Dealers Automated Quotations) Stock Exchange. The index had a market capitalisation of just under $17 trillion in April 2022 and has a base value of 125.
Which companies are in the NASDAQ 100?
To be listed on the NASDAQ 100, companies must meet NASDAQ's initial listing criteria, of which the most crucial include:
- Having been listed on the NASDAQ exchange in the Global Market or Global Select tiers
- Having been publicly traded for three months or more
- An average daily volume of 200,000 shares
- No ongoing bankruptcy proceedings
- Quarterly and annual financial report submissions.
The NASDAQ 100 features companies from a diverse range of industries – consumer, industrial, telecommunications, healthcare and others – yet is dominated by technology businesses. These comprised just under 60% of the index in May 2020. It does not feature financial businesses, with these featuring within the NASDAQ Financial-100 index.
As a result, the NASDAQ 100 is one of the purest barometers of the market's sentiment towards high-growth, high-cap technology businesses.
What does the NASDAQ 100 measure?
The NASDAQ 100 measures the movements in the total value of the shares of all 100 companies that constitute it.
As the share prices of companies in the index rise or fall, so does the index. However, given the number of businesses in the NASDAQ 100, increases and decreases are felt on the macro level, making the index liable to change in line with larger shifts in market sentiment.
How often does the NASDAQ 100 change?
The NASDAQ 100 changes every year in December, alongside potential quarterly rebalancing in March, June and September. That is alongside the regular removal companies due to mergers and acquisitions, bankruptcy proceedings, failing to meet listing criteria, and moving to other stock exchanges.
Each December, NASDAQ analyses companies inside and outside the index. Based on a comparison of share prices and publicly announced share totals, businesses are deleted if they do not meet the criteria or are outperformed by a business not currently in the index, with this company taking the previous organisation's place. This ensures that the constituents of the NASDAQ 100 are high-growth, high-cap companies.
Quarterly deletions and additions may occur if:
- one company's worth is 24% or more of the index's total
- companies weighing of at least 4.5% make up 48% or more of the index.
A December annual rebalancing can occur after a quarterly rebalancing if:
- the worth of a single company exceeds 15% of the total index
- the top five companies by market capitalisation make up 40% of the index or greater.
A brief history of the NASDAQ 100
Launched on January 31, 1985, the NASDAQ 100 was the world's first electronic exchange, and designed as a means of supporting derivatives like futures and options.
After explosive growth in the nineties, it was hit especially hard following the dotcom bubble of 2000, and again in the wake of the Global Financial Crisis in 2008. However, with the rise and maturation of US technology businesses, the index saw significant price increases over 700% between 2012 and 2022.
What are the NASDAQ 100's trading hours?
NASDAQ 100 trading hours are between 9:30 to 16:00, Eastern Time Zone, Monday through Friday. Pre-market and after-hours trading sessions run from 4:00 to 9:30 and 16:00 to 20:00, respectively (those these may differ between brokerages).
How is the NASDAQ 100 calculated?
The NASDAQ 100 is calculated and weighted based on the market capitalisation of the businesses featured within it. This means that larger-cap companies exert more force on the final index score.
The total value of the NASDAQ 100 is calculated as the sum of all index share weights. These index share weights are calculated by taking the total value of every security within the index, multiplied by the most recent sale price of each security, then divided by the index divisor to ensure that the index value is such that it can be easily reported.
Index value = (aggregate value of index share weights of each of the index securities x each securities last sale price) / divisor
Index share weight = (total value of all stocks * each security's closing price) /divisor
Divisor = (market value after adjustments / market value before adjustments) x divisor before adjustments
What influences the NASDAQ 100?
Like any stock index, the value of the NASDAQ 100 is influenced by a range of factors, an understanding of which can improve the likelihood of successful trading:
- Company performance – The effectiveness of the business listed in the NASDAQ 100 will affect its share price, which will influence its share weight and the index in kind.
If a company's financial performance is good or it has good prospects (such as the prospect of M&A activity), then its share price will increase, increasing the NASDAQ 100 index in kind. If results are poor or the company is affected by negative events, then the index will fall.
It's important to note that index movements happen on a macro level – single company performance will not have too significant an affect, given the weighting used within the index.
- Historical precedence – As a general rule of thumb, the NASDAQ 100 has experienced robust performance compared to other indices in the past two decades. Negative results were only seen in 2000-2003, 2008 and 2013. Past performance is no guarantee of future results.
- Sociopolitical events – From warfare to terrorism all the way through to pandemics and geopolitical tensions, world events across society and politics can influence the value of companies trading on the NASDAQ 100.
That's because, if a company's operations are negatively affected, it will likely impact their financial performance and prospects, reducing their value in the eyes of NASDAQ 100 traders.
- Prevailing economic trends – Economic trends such as rising inflation, rising interest rates, economic relief packages and recessions can all impact the fortunes and future prospects of NASDAQ 100 trading by affecting trader sentiment, encouraging bearish or bullish trading behaviour.
Other financial securities like the foreign exchange (forex) market can also have an effect – a poor dollar exchange rate can negatively impact the finances of companies listed on the NASDAQ 100, reducing their index values in kind.
- Thematic trends – Other long-term trends, such as the development of certain technologies, realignment of politics and things like climate change can all be seem to affect the NASDAQ 100 over the long term; something of which thematic investors are keenly aware.
Is the NASDAQ 100 a good investment? What are the benefits?
The NASDAQ 100 is generally seen as a good investment due to several factors:
As discussed, in 20 years, the NASDAQ 100 has only posted negative results in 2000-2003, 2008 and 2013 and has consistently generated better returns than the S&P 500. Past performance, however, is no guarantee of future results.
Technology stocks are booming and, while the market has been affected by bearish activity in 2022, the fundamentals of NASDAQ 100 companies like Amazon, Apple and Alphabet are strong. Indeed, many companies that call the index home have strong cash flows and a dominating share of their specific markets, making these companies – and the NASDAQ 100 – a good investment choice.
Despite its tech-stock focus, the NASDAQ 100 is home to 100 of the US's largest and fastest-growing companies across fields as diverse as healthcare, industry and consumer goods. This makes NASDAQ 100 traders relatively well shielded from shocks affecting single companies or industries.
Daily trading volumes for the NASDAQ 100 average out at over 5 billion, according to August 2022 Yahoo Finance figures. This is beneficial as it makes the index more resistant to extreme day-to-day swings in price, spreads on instruments like CFDs are typically lower.
While extreme moment-by-moment swings are less likely due to high volumes, the NASDAQ 100 does exhibit higher overall volatility than other large indices like the Dow Jones. This can mean higher returns on each trade, making the NASDAQ 100 a good investment.
Availability of leveraged products
Leveraged products such as CFDs are available for traders wishing to trade the NASDAQ 100. These allow traders to increase their market exposure with a smaller investment, adopting positions without the need to own assets.
What are the key NASDAQ 100 trading strategies?
Before you begin trading the NASDAQ 100, it's important to consider the two key strategies that can help to ensure your success.
The first is the use of technical analysis. By using a trading platform, those trading the NASDAQ 100 can keep an eye out for buy and sell signals such as MACD (moving average convergence divergence), MA (moving average), the ascending wedge, and oscillator indicators like RSI (relative strength index).
The second is fundamental analysis. This is NASDAQ 100 trading based on macroeconomic variables such as economic data (US interest rates, GDP, employment, etc.) and data relating to the strength of the businesses within the index (such as market capitalisation, earnings and M&A activity). Using this information, traders predict whether the NASDAQ 100 will increase or decrease, executing trades in kind.
How to start trading the NASDAQ 100
If you are interested in CFD trading on the NASDAQ 100, getting started trading the NASDAQ 100 is easy with FXCM.
- Create an account – Create a free account with FXCM or try a demo account to learn trading with zero risk.
- Download a platform – Choose your platform: we offer support for Trading Station, MetaTrader 4 and NinjaTrader: read our guide to find out which is the right platform for you.
- Place funds in your account
- Choose your first trade – Once you have a strong understanding of what CFD trading is and how to make a trade, it's time to choose whether to go long or short on the NASDAQ 100, using technical or fundamental analysis to inform your trade. Always start with small levels of market exposure so that you can learn the ropes without undue risk to your funds.
- Improve your skills – FXCM has a range of educational tools, live market webinars, and a free live online classroom to help you hone your skills and execute better NASDAQ CFD trades. Visit our education hub to get started.
FXCM Research Team
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