What is the Nasdaq 100 (NAS100) Index & How to Trade It? / Axi (2024)

The Nasdaq 100 is an index of the hundred largest non-financial stocks listed on the NASDAQ stock exchange. The companies included in this index are often technology or biotechnology firms.

The Nasdaq 100 is a useful tool for investors who wish to trade technology stocks because it provides a good overview of how all tech sector stocks are performing at any given time.

In this article, we will deep dive into the most widely watched stockindex in the world: the NASDAQ100. Widely seen as the leading benchmark for the largest U.S. non-financialcompanies, there are multiple ways you can startindextradingtoday to gain exposure to theNASDAQ 100. Before we discuss how to trade indiceslike theNASDAQ100, letushave a look at what thisindexrepresents and thelargestcompaniesincluded in it.

Let's first understand what is the NASDAQ

The NASDAQ is a U.S. stock exchange based in New York City and is the second largest stock exchange in the United States measured by market capitalisation - only behind the New York Stock Exchange (NYSE). The exchange is operated by the company NASDAQ Inc. and was founded in February 1971 as the National Association of Securities Dealers Automated Quotations.

A company wanting to be listed on the NASDAQ must be registered with the Securities and Exchange Commission (SEC), have at least three market makers, and meet the minimum requirements set by the exchange.

What is the NASDAQ 100?

The NASDAQ 100 is an index that consists of the 100 largest non-financial companies listed on the NASDAQ stock exchange. The weight each stock has in the index is determined by its market capitalisation, meaning the higher the market cap of a particular component, the higher its influence on the index.

While the index doesn't only consist of technology companies, investors often use it to gauge the performance of the United States' biggest tech companies, since they make up a significant part of it.

How is the NASDAQ 100 calculated?

The NASDAQ 100 actually consists of 102 shares. The reason for this is that some companies have two share classes - for example, Alphabet has Class A and Class C shares in the index.

The index is calculated by the market capitalisation of its constituents. The value of the index is calculated by multiplying each security’s last sale price with the aggregate value of the index share weights of each of the index securities, then dividing by an index divisor. However, no company can have more than a 24% weighting in the index.

Tip: An index divisor is a number used to compute the nominal value of a price-weighted stock market index.

What are the NASDAQ 100 trading hours?

The NASDAQ trading hours are as follows:

• Opens: 9:30 AM (ET)
• Closes: 4:00 PM (ET)

Pre-markettrading hours run from 4:00 AM to 9:30 AM (ET) and after-hours trading occurs between 4:00 PM and 8:00 PM.

What sectors are in the NASDAQ 100?

In the graph below we can see theNASDAQ100 is heavily dominated by thetechnology sector, which makes up almost 60% of theindex. Buying theindexis therefore often seen as a bet on the U.S.technologysector.

Source: Nasdaq

NASDAQ 100 share price

TheNASDAQ100 all-time high currently stands at 16,674points. The 52-week low is 11,878points.

Theindexhas seen a remarkable performance in the past decade, as seen in the chart below.

How to trade NASDAQ 100?

Contract forDifference (CFDs) is one of the ways you can trade the NASDAQ 100 cost-effectively and efficiently. Generally, brokers offer a CFD based on the cash index (US TECH) and a CFD based on the underlying futures contract (NAS100.fs).

When you trade the index using CFDs, you can speculate on the direction of the underlying instrument (the NASDAQ 100) without owning it or any of its constituents. You can make use of leverage and you will have the ability to go both long and short.

This can prove especially useful during a downturn. Most investors want to avoid a reshuffling of their portfolio as the costs can quickly add up and it is incredibly difficult to time the market correctly. Therefore, instead of selling a large part of your portfolio when you anticipate a correction, you could use CFDs to speculate on falling prices.

Whether the cash CFD (USTECH) or futures CFD (NAS100.fs) will be more suitable for you will primarily depend on your trading style. If you hold positions for a short period of time, you might prefer USTECH as it has low spreads. On the other hand, if you are a long-term trader you might prefer the NAS100.fs as there are no swap charges.

Aside fromtradingtheindexitself, Axi also offers commission-freeshareCFDs. You can trade key constituents of the NASDAQ 100 such as Apple, Alphabet, Amazon, Facebook, and Microsoft cost-effectively.

How to invest in NASDAQ 100?

Exchange Traded Funds (ETFs) are the most popular way to invest in the NASDAQ 100 index. It is more cost-effective than buying individual shares and the rebalancing is done frequently.

As the NASDAQ 100 is a popular product, there are a variety of ETFs available. Aside from the classic ETFs that track the index (such as the QQQ managed by Invesco), there are also leveraged ETFs and ETFs that allow you to bet against the index (i.e. short the NASDAQ 100). Some of the most popular NASDAQ 100 ETFs are Invesco QQQ, ProShares UltraPro QQQ, and ProShares Ultra QQQ.

What moves the NASDAQ 100?

The NASDAQ 100 is influenced by a variety of factors that also move the broader stock market. This can vary from economic data, interest rates, and monetary policy decisions to geopolitical events and natural disasters.

However, with the NASDAQ 100 being tech-heavy and consisting almost entirely of US-based companies, there are certain factors that affect the NASDAQ 100 more than other indices such as the US2000 or Dow Jones 30.

Earnings reports or company news from one of the heavyweights such as Apple or Amazon can have a significant influence on the overall index.

Furthermore, investors should pay close attention to the overall risk sentiment in the stock market. Tech stocks are likely to suffer the most during periods of "risk-off" as investors will move out of risky stocks and seek safe havens.

What is the average return on the NASDAQ 100?

In a recent study from NASDAQ, the NASDAQ 100 outperformed the S&P 500 over the 13 years the study was held, maintaining cumulative total returns of approximately 2.5 times that of the S&P500 TR Index.

Source: Nasdaq

What does the performance of the NASDAQ 100 tell us?

The NASDAQ 100 has outperformed the S&P 500 over the past decade. However, this was accompanied by higher volatility, as visible in the chart above. It is also worth noting that the S&P 500 offers greater diversification. Not just due to the fact that it consists of 500 instead of 100 companies, but also because the index is not heavily dominated by one single sector as is the case with the NASDAQ 100.

Despite that, the NASDAQ 100 remains a great tool for tracking the performance of the largest U.S. technology companies. Some investors may also prefer buying the index instead of investing in the individual components. NASDAQ has rules in place that prevent one company from gaining too much weight in the index, which is useful.

How are the NASDAQ 100 companies selected?

NASDAQhas several eligibility criteria thatcompaniesneed to meet to be part of theNASDAQ100index:

• Only common stocks, ordinary shares, and tracking stocks are eligible
• The stock must be listed on the NASDAQ stock exchange
• Only non-financial companies can be part of the index
• The stock must have a minimum average daily trading volume of 200K shares
• The stock must have traded for at least 3 full calendar months

NASDAQpicks the constituents for theindexonce per year, in December. Theindex is rebalanced on a quarterly basis - i.e. in March, June, September, and December.

What are the top 10 companies in the NASDAQ 100?

The top 10 companies in the NASDAQ 100 index are:

1. Apple
2. Microsoft
3. Amazon
4. Tesla
5. NVIDIA
6. Alphabet (Class C)
7. Alphabet (Class A)
8. Meta (formerly known as Facebook)
9. Adobe
10. Netflix

Together, those 10 heavyweights make up more than half of the entireindex. While someinvestors don't mind the factthat theindexis heavily dominated by only 10companies, others might preferindices that are more balanced.

List of NASDAQ 100 companies

Looking to learn more about other indices:

• ASX 200
• DAX 40
• FTSE 100

Ready to trade your edge?

Join thousands of traders and trade CFDs on forex, shares, indices, commodities, and cryptocurrencies!

This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Readers should seek their own advice.

Milan Cutkovic