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Instrument description

One is of the most popular and widely followed global index is without a doubt, the NASDAQ 100 index, which comprises 100 of the largest companies, and all of the companies do business in the technology sector. NASDAQ is the abbreviation for National Association of Securities Dealers Automated Quotations, and it began functioning on February 8, 1971, as the world’s first electronic stock market.

The NASDAQ 100 Index is the benchmark index that lists 100 largest companies that actively trades on the NASDAQ Stock Exchange. The companies are mostly related to technology along with retail, industry, health, media, and biotechnology sector.

The NASDAQ 100 Index is the world’s most recognized index and first choice of most traders and investors due to its large trading volume, daily volatility, and access to a wide range of stocks. The NASDAQ 100 Index is the part of the larger NASDAQ composite that is made up of 2500 to 3000 companies that are listed on the NASDAQ exchange. The NASDAQ 100 Index is strictly regulated, and the companies need to meet the eligibility and liquidity requirements and also comply with corporate standards.

History of NASDAQ 100 Index

The NASDAQ 100 Index was introduced on January 31, 1985, by NASDAQ, and it started functioning with two separate indices. The NASDAQ 100 Index comprises of technology, retail, telecommunication, transport, and health care companies, while the NASDAQ Financial 100 Index consists of banks, mortgage, brokerage firms, and insurance companies.

The base value was fixed at 250 on the last day of the year in December 1993, but later the index was set at 125 on January 1, 1994. The NASDAQ 100 Index touched the highest value during the ‘Dotcom Bubble’ in 2000, and index traded above the level of 4700 points. The NASDAQ 100 Index saw a recession period in 2002 and then a significant drop of 900 points. In 2008, there was a global financial crisis that affected every major financial market, following with the sub-prime crisis (real estate bubble) that left the NASDAQ 100 Index saw the value dropped to 1018 points, which was lowest in 6 years.

The NASDAQ 100 Index is the second largest in the world, according to market capitalization after the New York Stock Exchange (NYSE). A company must be listed on the Global Market or Global Select entity of the NASDAQ to be included in the NASDAQ 100 Index. The requirements that the NASDAQ companies must fulfill are

• The index security must be listed in the NASDAQ Exchange and include common stocks, tracking stocks, shares, and depository receipts.
• The shares must be offered to the public for at least 3 months
• The companies must maintain a daily volume of 200,000 shares
• The companies should submit both quarterly and annual financial reports
• The company should not be held in any legal or bankruptcy proceedings
• No company can have a weightage percentage of more than 24%

The NASDAQ 100 Index is composed of 100 largest companies that do business in both domestic and international markets. The 100 prominent companies are traded actively on the NASDAQ Exchange, and the NASDAQ 100 Index gets reviewed after every quarter, and the companies are selected based on their market capitalizations. The most popular companies in the NASDAQ 100 Index include Apple, Microsoft, Facebook, Amazon, Intel Corporation, Cisco Systems, Amgen, Netflix, Tesla, PayPal Holdings, NVIDIA, Electronic Arts Inc., and Adobe Systems.

How the value of NASDAQ 100 is calculated

The NASDAQ 100 Index is a modified market-capitalization-weighted index. The value of the NASDAQ 100 Index indicates the combined Index shares of each company, which is multiplied by the sale price of each company and divided by the divisor of the index. The 100 companies on the NASDAQ 100 Index are reviewed quarterly, and companies get added and removed in the list according to their market performance and size of their market cap.

The market capitalization of the NASDAQ 100 Index is estimated to be nearly $10 Trillion. As the NASDAQ 100 Index is a modified market-cap index, the weighting criteria limit the influence of bigger market cap companies on the value of the index. The weighting constraints balance the index value among all the constituents of the index. The NASDAQ 100 Index contributes to nearly 70% of the total market cap.

How to read the price change in NASDAQ 100

The NASDAQ 100 Index is a global index that is known for its extraordinary performance and consisting of technology giants that work in nearly every country all across the world. The shares of the 100 companies are valued in U.S Dollar. In 2019, those investors who invested in the NASDAQ 100 Index after the Global crisis of 2008 got a return on equity (ROE) of a staggering 369%. As we live in a technology-driven world, the NASDAQ 100 Index will continue to improve its value and demonstrate a stable market of innovation and growth.

If we look at the NASDAQ 100 Index chart, we see the Index trades in a stable way and from the range of 7200.00 to 10000.0 points from July 2019 to the end of February 2020. The NASDAQ 100 Index recorded the highest value of 9749.32 on February 19, 2020. There is a sudden downward trend since the last week of February, and the NASDAQ 100 Index recorded the lowest value of 7020.01 on March 23, 2020. Since March, the NASDAQ 100 Index is seen climbing the chart steadily with constant ups and downs. The index trades at 10580.81 USD. The Bid price is 10576.4, while the Ask price is 10574.5.

How to trade in NASDAQ 100

The NASDAQ 100 Index is known to be quite liquid, volatile, and offer large trading volume. The trading hours of the NASDAQ 100 Index are from 09:30 to 16.00 (EST) from Monday to Thursday. However, the NASDAQ 100 Index value is also measured during pre-market trading hours (04:00 – 09:30 EST) and aftermarket trading hours that are (16:00 to 20:00 EST).

You can invest in the NASDAQ 100 Index among other options through Contract for Difference (CFDs), where you can speculate on the price of the underlying asset without having to buy or own the asset. CFD have the option to use leverage, which means making a small initial deposit and opening a relatively larger trading position. You can try to accurately predict the short term price movements and increase your chance of maximizing your profits if the market goes your way.

With CFDs, you also get the advantage of potentially making a profit by trading in both directions, which is going Long or Short. You can go Long (Buy) if you think the index will see a Bullish trend, and similarly, you can go Short (Sell) if you believe the market will see a Bearish trend. You have the chance to magnify your profits, but there is a certain risk of equal losses, so you want to implement a risk management strategy.

What causes the price change of NASDAQ 100?

The United States is considered to be a country with the largest economy, and the two stock market indices, the Dow Jones 30 and NASDAQ 100 Index, give a fair reflection on the stability and growth of the U.S economy. But the numerous micro and macro-economic factors that impact the U.S economy also influence the value of the NASDAQ 100 Index. Some of the important economic aspects that traders and investors need to take into consideration are

• Interest rates from the Federal Reserve Bank (Fed)
• Inflation
• Percentage changes in the Gross Domestic Product (GDP)
• Unemployment rate
• The value of the U.S Dollar and its exchange rate with other global currencies
• Trade relations and trade agreements with global countries
• International political and financial news and events

Traders can always take help from the Pre-Market Indicator (PMI), which predicts the opening price, which is based on the closing price of the last sale made on the pre-market trade. The NASDAQ 100 Index is a large financial market that provides numerous opportunities for both traders and investors to try to take advantage of the wide trading volume, long trading hours, and volatility.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.