If you want to know more about trading CFDs on the NASDAQ 100 and how it works, then this article will put you on the right track.
What is the NASDAQ 100?
The NASDAQ 100, commonly referred to as the NASDAQ composite is an index of more than 3,000 stocks listed on the NASDAQ exchange.
It is a benchmark index comprised of US technology stocks and the marketplace for buying and selling electronics and securities.
The difference between the two
There is a difference between the NASDAQ composite and the NASDAQ 100.
- The NASDAQ composite: lists the forerunners in technology and biotech, like Intel, Amazon, Google, Microsoft, Oracle and more.
- The NASDAQ 100: lists 100 of the biggest non-financial companies.
Both of them have to meet liquidity requirements and adhere to corporate governance standards. They are made up of US-based and international stocks, with market capitalization-weighted indexes.
To be listed on the NASDAQ, companies must:
- Have an average daily volume of 200,000 shares
- Be publicly offered for at least three months
- Free from bankruptcy proceedings
- Submit both quarterly and annual reports
- Be exclusively listed, in either Global Select or Global Market tiers on the NASDAQ 100
Let’s dig a little deeper with some background…
- In January 31, 1985, the NASDAQ 100 was launched and consisted of two separate indices:
- The NASDAQ 100 is made up of retail, technology, telecommunication, health care, transport, etc.
- NASDAQ Financial 100 which encompasses banking, insurance firms, mortgage and brokerage houses.
- Set at a base price of 250, it closed on the last day of December 1993, at 800.
- The base price was then reset at 125 at the beginning of January 1994.
- In 2000, the index reached 4,700- due to the dot-com bubble.
- Late-2000s recession, it fell below 2,000 point level due to the US housing bubble and the global financial crisis of 2008.
- In 2002, the index dropped to 900 due to a recession, the 9/11 attacks and the war in Afghanistan.
- February 16, 2001, it rose to 2,239.51 level.
- On the 24th October 2008, the NASDAQ 100 also experienced a limit down and as a result on November 20, 2008, the index reached a 6-year intraday low of 1,018.
- May 15, 2013, the index closed at a high of 3,000, thanks to the Fed introducing quantitative easing, bringing an end to the financial crisis.
- October 18, 2013, the index closed at a high of 3,355.63 due to GOOG (Google Inc) whose shares sold for more than $1,000 each.
- End of December 2015, the index reached 4,593.27.
Handy trading information for the NASDAQ 100
- The NASDAQ 100 futures contract (called the E-Mini) is tradable during the following times: 22:00-20:14 & 20:30-20:59 (GMT), Monday to Friday
- The NASDAQ 100 price moves in increments of 0.25
- Minimum trade size is 1 unit
- The currency of the NASDAQ 100 is the US Dollar
Now that you understand the basics of the NASDAQ 100, let’s dig a little deeper on trading CFDs on this index.
First of all
You will need a good reliable broker that offers the best trading conditions such as forex/CFD provider AvaTrade.
Their platform is easy-to-use and comes with advanced trading tools and more importantly, they offer the best trading conditions:
e.g. very competitive, a big variety of assets to choose from, outstanding education programs, demo account, financial tools and graphs and extremely qualified and helpful customer support
These are just some of the perks that they provide!
To top it off, they offer their customers high security for their funds and protection on all their transactions with segregated accounts for each customer.
They are authorized and regulated and enjoy high rankings and praise from their clients.
But more about that later, let’s jump straight in!
CFDs (Contract for difference) trading is fast becoming the most preferred way for traders to trade because of the many benefits:
- You don’t buy the underlying asset.
- Speculate only on the rise or fall of the price of an asset.
- You are able to go ‘short’ or ‘long’.
- Set ‘stop’ and limit orders.
- Plus more!
What it means is this:
AvaTrade offers high quality and the most up to date tools, important trading tips and professional coaching advice to help assist you when trading on the NASDAQ 100 index.
A great tip for CFD traders trading the NASDAQ 100 Index
For example, one of the tips they offer clients when trading on the NASDAQ 100 index is to follow the PMI (Pre-Market Indicator).
How can you actually use this?
This predicts opening prices, (which is based on the closing price of the last sale).
It takes into account factors like overnight news. This helps traders to make more informed decisions in market predictions.
The technology sector has a great influence on NASDAQ stocks. They are more volatile and can change direction quickly.
Monitoring the dollar index, which reflects the strength of the USD, is also recommended because it affects American companies.
Here’s another thing
The NASDAQ 100 index makes up 67% of the total market cap of the larger NASDAQ composite and should not be confused with the NASDAQ composite.
Here’s something interesting!
Did you know that the NASDAQ 100 index is the most actively traded on the NASDAQ stock exchange?
It is known for its volume and volatility compared to the other major indices.
Featuring as a benchmark index for US technology stocks, it also has companies in retail, biotechnology, health sectors and industrial.
The best part?
The NASDAQ 100 index is protected by strict US regulation for safety and federal exchange rules.
This is one of the reasons traders enjoy trading on the NASDAQ 100 index, plus it offers exposure to substantial market price action together with the day-to-day-fluctuations.
A basket of individual companies is tracked with changes in their share prices that affect the index through the course of the trading day.
The NASDAQ 100 is reviewed every quarter with the composition of the index weightings adjusted by means of a proprietary algorithm which is calculated by modified market capitalization weighted methodology.
All the composites need to meet pre-defined weight distribution requirements.
If they don’t, they are excluded.
Companies with bigger market cap have a bigger influence on the index price on the NASDAQ 100. Their capitalization is weighted.
Here are some of the top companies that you will find on the NASDAQ 100 index to trade:
- Apple Inc.
- Facebook Inc.
- Alphabet Inc.
- Microsoft Corp.
- Cisco Systems Inc.
- Comcast Corp.
- And many more!
Placing a value
The value of the NASDAQ 100 index is according to the following:
The aggregate value of the index share weights of each security, multiplied by each security’s last sale price and then divided by the divisor of the index equals the value of the NASDAQ 100 index.