What Is the NASDAQ 100 (NAS100) Index? How Do You Trade It?
Stock indices are one of the most attractive instruments for traders. Many people prefer trading them instead of individual stocks for a number of reasons, including higher volatility and better diversification.
The NASDAQ100 (NAS 100) is one of the most popular stock indices options. What is the NASDAQ100, and how do you trade it? We'll go over the details in this post.
What Is the NASDAQ 100 Index?
The NASDAQ 100 index is an index that tracks the price movement of the 100 largest non-financial companies listed on New York's NASDAQ Stock Exchange.
The companies in the index command different weights based on their market capitalization. The biggest movers in the index are technology companies like Apple, Meta, Google (Alphabet), PayPal, Amazon, Microsoft, and more. Therefore, most financial experts regard the NASDAQ 100 as a tech index.
Companies listed on the NASDAQ 100 must meet the stock exchange's listing criteria. The most important boxes such companies must tick include:
Listing in the NASDAQ exchange's Global Select or Global Market tiers
At least three months post-public listing
No bankruptcy proceedings
Average daily volumes of at least 200,000 shares
Quarterly or annual financial report submissions
Although technology companies make up around 60% of the NASDAQ 100 index, it features companies from other industries, including consumer, industrial, telecommunications, healthcare, and more. Keep in mind that the index doesn't feature any financial businesses as these are listed on the NASDAQ Financial-100 index.
NASDAQ 100 Index Constituent Stocks
You can check out the companies that currently make up the NASDAQ 100 index here. However, the top 10 companies in the index include:
Alphabet (Class C)
Alphabet (Class A)
Meta (formerly known as Facebook)
NASDAQ Composite Index VS NASDAQ 100 Index
The NASDAQ Composite and the NASDAQ 100 are both indices, but they couldn't be any more different.
The NASDAQ Composite is a mix of all the stocks listed on the NASDAQ stock exchange. Only stocks listed exclusively on the NASDAQ exchange qualify to enter the composite index. The index also contains only common stock, so exchange-traded funds (ETFs) and preferred stocks do not qualify. Thus, the composite index represents the entire NASDAQ market instead of just the largest companies.
On the other hand, the NASDAQ 100 index features the stocks of the 100 largest companies by market capitalization in sectors other than insurance, banking, brokerage, mortgage, and loans.
The NASDAQ 100 is the preferred choice for many traders as it is the only practical choice. It's more realistic to trade an index featuring 100 large companies than one featuring around 3,500 companies.
The Difference Between the NASDAQ 100, Dow Jones, and S&P 500
You now know what the NASDAQ 100 index means, but how about other popularly traded indices like the Dow Jones and the S&P 500?
The Dow Jones Industrial Average (DJIA), or Dow, is the most popular and the oldest index in the U.S. It was formed in 1896. The stocks in the DJIA are those of 30 widely recognized, U.S.-based companies currently listed on the NASDAQ stock exchange.
Thus, you can expect to see some big names like Microsoft, Apple, Home Depot, and McDonald's Corp. Editors at The Wall Street Journal subjectively pick the companies in the Dow 30.
The S&P 500 is another index similar to the NAS 100 and the Dow 30. However, the index features 500 large U.S. companies. The size of the index means that it contains all the stocks in the NAS 100 and the Dow 30. The stocks in the S&P 500 also come from all the major stock exchanges in the U.S.
Although the 500 stocks in the S&P 500 only cover a fraction of the 6,000 publicly traded stocks, the companies in the index account for 85% of the total value of traded companies in the U.S. Therefore, the S&P 500 is a better representative of the U.S market in general compared to the NAS100 or the Dow.
However, you should keep in mind that the S&P 500 weights companies in the index by their market capitalization. This means that the biggest names like Alphabet, Tesla, Amazon, Microsoft, and Apple still have an outsized impact on the index. Together, they make up around 20% of the index's value.
What Is the Current Price of NASDAQ 100?
The current price of NASDAQ 100 is 15399.7 as of the time of writing. You can see NASDAQ real-time quotes on the trading platform of any reputable broker. A quick Google search will also show you the current price of the index.
NASDAQ100 Index Historical Price Trend Analysis
In terms of returns, the NASDAQ 100 index is a strong performer, beating all other comparative indices. Since 2010, the index has averaged annual returns of 18.2%. This means that if you invested $10,000 in the index ten years ago and compounded your returns, you could be sitting on a 6000% profit (over $600,000).
In that time, the Dow Jones Industrial Average (DJIA) has recorded annual returns of 9.5% while the S&P 500 has recorded an average return of 13.4%.
The NASDAQ 100's losing years in that time was in 2018, when it closed at -1.04%, and in 2022, when it closed at -32.97.
However, it's important to note that the NAS100's impressive returns come with high volatility. Therefore, it may not be the best option for conservative investors who may prefer a smoother equity curve.
The NAS100's volatility is largely down to the fact that it's heavily weighted toward stocks in the technology sector. Therefore, any macroeconomic events that affect the tech scene will cause wild swings in the NAS100.
How to Buy NASDAQ 100 Index?
Are you thinking about how to buy or how to trade the NASDAQ 100? You have three main options you can go with:
NASDAQ100 Index Futures
As a NASDAQ 100 futures trader, you'll enter into a financial or futures contract with your broker, which allows you to buy or sell a specific quantity of the NAS100 when the price rises or falls to a certain level in the future. You don't own any stock, just the futures contract.
Your profit comes from the difference in the asset's current price and the price at the maturity of the contract. You will only make money if the asset's value rises or falls in line with your prediction.
So, if you're holding a long futures contract, for example, you'll lose money on the contract if the NAS100 enters a downtrend within the term of the contract. There's no flexibility as you're tied to the contract.
You need a margin trading account to trade NASDAQ100 index futures.
NASDAQ 100 Stock
NASDAQ 100 stock trading is as simple as buying stocks in all the companies in the NASDAQ 100. Many stock brokers allow purchasing shares in these 100 companies. You own the shares you purchase, and you can earn dividends where applicable.
However, the rigors of managing a portfolio of 100 stocks as an individual will be overwhelming for the average trader.
This is especially true for people with smaller trading capital. You may not find a broker that offers fractional shares in all 100 stocks individually.
Even when you have the capital to spread evenly across the 100 stocks, the weighting of the NAS100 presents a different challenge. You must know how much capital to allocate to each stock to mirror the index's performance.
You must also keep tabs on any changes in the index.
An alternative to this method of stock trading is investing in exchange-traded funds (ETFs) and mutual funds that mirror the NAS100.
Keep in mind that regardless of the options you choose here, you can only make profits if the index records a positive performance over the duration of the investment. Thus, if the index has a year like 2022 shortly after your investment, you could lose -30% of your investment in one year.
NASDAQ 100 Index CFD
In NASDAQ 100 Index CFD trading, you are only trading the index's price movement. You don't own any of the stocks that make up the index, and your investment doesn't go into the U.S. stock market.
NAS100 index traders go long (buy) when they expect the index to go on a bullish run over a specific timeframe and go short (sell) when they expect the index to go on a bearish run. However, the biggest advantage of CFD trading is that you're not wedded to a position.
You can seamlessly switch from a long position to a short one. The NAS100 having a "bad" year means more short positions for the savvy CFDs trader.
To trade NAS100 CFD, you need to sign up with a reputable CFD broker. Mitrade is a CFD broker offering the best index trading conditions to traders around the world.
NAS100 is one of the most commonly traded assets on the platform:
Trading NAS100 on Mitrade is simple:
Open or log into your Mitrade account
Navigate to the NAS 100 chart
Click on the "Buy" or "Sell" to go long or short as your strategy dictates
Fill out the order details
Execute your position
After you've entered the position, you can wait for it to reach your desired targets or close it out early.
Things to Note When Trading the NASDAQ 100 Index CFD
To succeed as a NASDAQ 100 trader, there are a few important details you need to keep in mind:
Pay Attention to the Index's Key Movers
Regardless of your trading strategy, it's always a good idea to keep tabs on the factors that can influence the direction of the NAS100. These include:
Monetary and Economic Releases
Interest rates, job data, inflation reports, and other such macroeconomic data can heavily influence the direction of the NAS100. For example, low-interest rates can push the index higher as it encourages borrowing and spending. Conversely, high-interest rates have a negative effect on businesses, leading to a decline or a stall in the performance of the index.
Technology Sector Performance
As we've seen above, the tech sector heavily controls the NAS100. Therefore, the index will mirror any up and down movements in the niche. For example, the COVID-19 lockdown period saw the tech sector enjoy its best performance in years. Naturally, the NAS100 posted average returns of nearly 40% between 2019 and 2021.
On the other hand, 2022 was a bad year for tech companies, with many of them revising growth forecasts and laying off thousands of workers. This led to the worst year the index has seen since the 2008 financial crisis.
Be Careful of the Volatility
The NAS100 is a volatile index. It can swing wildly, even in the short term. It's not uncommon to see the index move 3% or more on either side. Therefore, it's important that you avoid overleveraging when trading the index.
You Need a Robust Strategy
To trade the NAS100 CFD successfully, you need to have a robust strategy that will tell you when to enter the market, what direction to take, and when to exit. The best strategies often have a positive risk-reward ratio as it's the only way to guarantee long-term success.
With a trading strategy, you'll avoid making emotional trading decisions, which may increase the risk of losing your trading account.
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* The content presented above, whether from a third party or not, is considered as general advice only. This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.