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Nasdaq 100 trading
The Nasdaq is a benchmark index for US technology stocks and a global electronic marketplace for buying and selling securities. The term Nasdaq that is also referred to the Nasdaq composite, which is an index of over 3,000 stocks that are listed on the Nasdaq exchange. This exchange in particular includes the globe’s forerunners in technology and biotech such as Microsoft, Google, Oracle, Intel and Amazon to list a few. However, there is a difference between the Nasdaq composite and the Nasdaq 100 which is made up of 100 largest nonfinancial companies listed on the NASDAQ exchange.
Both are market capitalization-weighted indexes that are made up of both US based and international stocks that represent the NASDAQ Global Select Market Composite. These stocks need to meet the strict liquidity requirements and need to adhere to corporate governance standards.
NASDAQ trading – How to Trade NASDAQ 100 ?
What is the Nasdaq 100?
Nasdaq 100 was launched on 31 January 1985, by Nasdaq and started off with two separate indices: The NASDAQ-100 consists of retail, technology, telecommunication, health care, transport, etc. and the NASDAQ Financial-100 which consists of banking, insurance firms, mortgage and brokerage houses. By creating two indices the NASDAQ wanted options trading and futures contracts would be created on their basis in the hopes that other mutual funds would adopt the same principles on their benchmarks.
The base price of the index was set at 250 and closed at 800 on the last day of December 1993, the base was reset at 125 on the 1st of January 1994 leaving the NASDAQ 100 price below that of the more popular NASDAQ Composite.
The all-time highs for the index were welcomed by the dot-com bubble that was in 2000 where they stood above the 4,700 level. In 2002 the markets started evolving to the recession and the September 11 attacks and the Afghan War, that saw the index drop to the 900-point level during this period. The recovery took 5 years and eventually the index corrected itself on February 16, 2001 and high of 2,239.51-point level. The Late-2000s recession the US saw the housing bubble and Global Financial Crisis of 2008, with a correction at below 2,000-point level. While the Nasdaq 100 also experienced a limit down on the 24th of October 2008, and as a result on November 20, 2008 the index reached a 6-year intraday low of 1,018.
The Quantitative Easing (QE) from the Fed (Federal Reserve) was what brought in the end of the financial crisis, the index started on a volatile four-year climb, and on May 15, 2013 closed above 3,000. Thanks to GOOG (google Inc.) on the 18th of October 2013, the index closed at a high of 3,355.63 as each Google’s share was sold for more than £1,000. Finally, the index reached 4,593.27 as 2015 came to a close.
NASDAQ 100 Index composition
The Nasdaq 100 includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock trading Market, and is calculated based on modified market capitalization-weighted methodology. Every quarter the Nasdaq will be reviewed, and the composition of the Nasdaq 100 index weightings are adjusted according to its components by means of a proprietary algorithm, and if the composites do not meet pre-defined weight distribution requirements they are excluded.
|Companies||Index weighting (%)|
|Cisco Systems Inc||2.7%|
Factors that influence the overall NASDAQ index price
It is always handy for traders to follow the PMI (Pre-Market Indicator), as it predicts opening prices based on closing price of the last sale from the pre-market trade. This PMI also takes into consideration overnight news, hence assisting traders in market predictions.
The main factors that influence the Nasdaq stocks are heavily skewed towards the technology sector. The stocks trading are more volatile and change direction quickly.
Trading the Nasdaq 100 with Technical Analysis
Technical analysis is used to analyse the price action of assets on charts. There are a number of indicators that are all designed to locate buy signals and sell signals based on historical patterns. Technical analysis can help traders identify trends, find potential reversals, and gauge the overall market sentiment.
One popular indicator used in technical analysis is the Moving Average Convergence Divergence (MACD) oscillator. It consists of two lines, the MACD line and the signal line and signals potential buy and sell points when these two lines cross. When the MACD line crosses above the signal line it’s an indication to buy, and when the MACD line crosses below the signal line it’s an indication to sell.
The MACD is just one of the many different indicators used by traders. You should test many of these indicators and find those that you understand best, and those that work best with your trading style. It’s also important to understand that technical analysis isn’t always accurate, and so risk management is also important. Traders should be sure to use an appropriate amount of leverage, and follow the appropriate money management and risk management strategies.
Technical analysis isn’t the only way to locate opportunities in trading. There is another type of analysis called fundamental analysis that seeks to use real-world events, news, and data to predict the price movements in assets.
Trading the Nasdaq 100 using Fundamental Analysis
While technical analysis can be used to locate potential buy and sell levels based on historical price movements, the real driver behind those moves is often fundamental variables. That makes it very important for traders to understand and account for the fundamental variables that can have an impact on market movements. There are a number of these fundamental variables, such as the following:
- The top companies in the Nasdaq 100 can have an outsized impact on the movement of the index as a whole. That’s because as a capitalization weighted index the largest companies tend to have the most impact on the index. That means to trade the Nasdaq 100 successfully you should also have a firm grasp on the movements of the top components like Apple, Microsoft, and Amazon.
- Monetary policy changes from the Federal Reserve have an impact on every market, and the Nasdaq 100 is no exception. Loose monetary policy tends to lift the market in general as investors expect borrowing and investment for businesses to become less expensive.
- Many of the reports on economic activity in the U.S. will impact the Nasdaq 100. This includes manufacturing data, consumer spending, retail sales, inflation readings, employment, and overall GDP. All of these data points report on the strength of the economy, plus they can also have an impact on the future actions of the Federal Reserve.
- Trade wars can have an impact on the multi-national companies in the Nasdaq 100 by increasing tariffs and by putting up barriers to trade.
- Regulations and government actions can impact the price of individual components of the Nasdaq 100, and thus impact the overall index. For example, anti-trust hearings often include the largest of the Nasdaq 100 components, and when several of the top ten components fall at the same time it can put strong downward pressures on the index as a whole.
NASDAQ 100 Trading information
- The NASDAQ 100 futures contract (called the E-Mini) is tradable from 22:00-20:14 & 20:30-20:59 (GMT), Monday to Friday
- The Nasdaq-100 price moves in increments of 0.25
- The margin requirement for trading the Nasdaq composite is usually about 0.5% (i.e. leverage)
- The minimum trade size is 1 unit
- The currency of the Nasdaq 100 is the US Dollar
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Nasdaq Trading Main FAQs
- What is the Nasdaq 100 Index?
The Nasdaq index is composed of the 100 largest and most actively traded stocks on the Nasdaq exchange. Because the Nasdaq exchange does not include financial companies, and is heavily weighted towards both technology and health care, the Nasdaq 100 is often considered to be a benchmark for the strength of the technology and health care industries. Because many of the companies listed on the Nasdaq are high growth the Nasdaq 100 has delivered strong returns over the past two decades.
- Should I trade the Nasdaq 100 Index?
Anyone interested in speculating on the growth of the technology industry should be interested in trading the Nasdaq 100. With over 50% of the index comprised of technology names the index is an excellent proxy for the technology sector. Plus, as one of the most closely followed indices in the world, there is a wealth of knowledge regarding trading the Nasdaq 100. Both fundamental and technical analysis of the index is commonplace and easily found, which will make your own analysis easier.
- What is the best strategy for trading the Nasdaq 100 Index?
Traders can use either technical or fundamental analysis to trade the Nasdaq 100. The best strategy will depend on the trader’s own personality and knowledge regarding the strategy chosen. In the realm of technical trading there are a number of indicators that can work well in trading the Nasdaq 100, such as moving averages, MACD, RSI, and others. Price patterns such as support/resistance or trend channels can also be useful. Fundamental factors shouldn’t be overlooked when trading either. Major economic factors such as GDP, interest rates, trade issues and more should also be considered.
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