The NASDAQ 100 Index Informations
|Apple Inc (AAPL)||12.011%||Technology|
|Microsoft Corp (MSFT)||10.692%||Technology|
|Facebook Inc (FB)||4.454%||Social Media|
|Alphabet Inc (GOOGL)||4.280%||Technology|
|Alphabet Inc (GOOG)||4.279%||Technology|
|Intel Corp (INTC)||3.226%||Semiconductor Manufacturing|
|Cisco Systems Inc (CSCO)||2.245%||Networking Hardware|
|Comcast Corp (CMCSA)||2.193%||Telecommunications|
|PepsiCo Inc (PEP)||2.159%||Food & Beverages|
The mind-blowing changes in this era of technology extend from our everyday lives to our finances with the incredible opportunities brought by the NASDAQ100 Index (INDEXNASDAQ: NDX). The immense growth of the tech industry continues to mesmerise us in all kinds of industries including communication, health, transportation, retail and investment.
Investors and traders around the world tune into the NASDAQ-100 to predict the areas in which technology will continue to infuse into life and where new investment and trading opportunities will arise.
What is the NASDAQ 100 Index?
The NASDAQ100 Index lists the 100 largest non-financial companies listed in the NASDAQ Stock Exchange, the world’s first global electronic marketplace to buy and sell securities. Together with the Dow Jones 30 and the S&P 500, it is one of “the big three” indices of the US and the global economy.
The NDX was established by the Nasdaq Stock Exchange along with the NASDAQ Financial-100 Index (INDEXNASDAQ: IXF) and the NASDAQ Composite Index (INDEXNASDAQ: IXIC). The main goal of the NASDAQ-100 Index was to become the new benchmark for options and future contracts of the mutual funds operating in the tech industry.
The History of the NASDAQ
The NASDAQ 100 index started its journey in the financial markets on January 31, 1985 with the base price of $250.00 and closed its first year with a significant loss at $132.29. However, the markets’ attention shifted towards the rising tech-infused business practices, and the index rose steadily until 1999.
The new millennium started with a 3-year-long downtrend that ended when the NDX closed 2002 below $1,000.00. Since then, the NASDAQ 100 index achieved to close every year with strong increases.
The only exception in this trend was the financial crisis of 2007-08, when the global financial system nearly fell apart. Like others in the “big three”, the NDX is well-known for continuously refreshing its “all-time high” and its most recent record peak was on January 17, 2000 when it reached $9,176.47.
The Composition and Reviewing of the NASDAQ 100
The NASDAQ 100 is a modified market capitalisation-weighted index composed of numerous popular brands from Computers, Technology, Internet, Retail, Finance, Biotech and Telecommunications industries. Apple, Google, Facebook, Amazon, Microsoft, Tesla, and Netflix stocks are only a few of the famous names in the index.
The components are selected through rigorous selection criteria which involves meeting a range of strict eligibility standards which include being listed only in NASDAQ; being publicly offered on an American market for three months; having an average daily trading volume of 200,000 shares; having up-to-date quarterly and annual reporting; and not being in bankruptcy proceedings. Like the S&P 500, there are also non-US components in the NDX such as technology company Baidu and IT company Check Point.
The NASDAQ 100 index composition is reviewed annually every December and the eligibility status of the components is evaluated for re-ranking and rebalancing. The companies that meet the eligibility standards are ranked according to their market values, which is determined by their share price on the last trading day of October and the publicly announced share totals on the last trading day of November. The top 100 eligible companies in the list are included in the index.
If a listed company falls below the 100 mark but continues to be ranked between 101 and 125, it remains in the index with the condition of climbing back into top 100 next year. Else, it gets delisted and the next eligible company is included. A company may be delisted also in case of a transfer to another exchange, a merger, a bankruptcy filing, an unmet eligibility standard, or a failure to have an index weighting above 0.001%.
Trading the NASDAQ 100 Index
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How to trade the NASDAQ100 Index?
The record-breaking nature of the NASDAQpresents many trading opportunities. Learning the history, the composition and the internal dynamics of the index and combining our knowledge with the amazing tools offered by AvaTrade, we reached a strong level of confidence to trade the NASDAQ 100 Index. There is one more step left to perfect our NASDAQ trading strategy.
In this next section, we will learn to analyse the NDX using the fundamentals and technical indicators.
The NASDAQ 100 Index Fundamental Analysis
As the leading indicator of the technology and related industries, the value of the NASDAQ100 Index can be influenced by multiple factors: the price of the US Dollar; the stock prices of the listed companies; events and technological developments which can influence the heavily represented industries.
The US Dollar is the currency which the NASDAQ 100 Index is traded against; therefore, any fluctuations in the value of the USD can have a direct impact on the value of the NDX. The interest rate decisions and monetary policies by the US Federal Reserve have the strongest influence over the currency.
Economic reports such as Nonfarm Payrolls (NFP), Consumer Price Index (CPI), and Gross Domestic Product (GDP) reflect the economic health and affect the price of the US Dollar. Furthermore, political events like trade wars can also cause changes through moderating the import and export volumes.
The value of the NASDAQ 100 Index is calculated using the stock prices of the components, so any change that occurs in the stock prices will affect the index value in accordance with the weight of the listed company. These events may range from new product or service releases to quarterly earnings reports. For example, Apple Inc has 12.011% weight in the NASDAQ 100 index.
When Apple releases a new iPhone and the market applauds the innovations and the sales potential of the new product, the Apple stocks will appreciate and lead the NASDAQ 100 Index to a significant rise.
However, a product which may steal customers from other companies in the index, like Apple TV vs Netflix, may have a smaller impact as the increase in Apple stock prices would be balanced out by the decrease in the Netflix stock prices.
On the other hand, the video game company Electronic Arts Inc weighs only 0.355% in the index; so, when they release a new video game, the reaction of the market in terms of stock pricing would be reflected in smaller proportions on the NASDAQ 100 index.
Finally, technological and industrial developments also have an important effect on the index price. Since the NASDAQ 100 index is mainly constituted of technology companies, any developments which can improve the design, production, sales and marketing processes can encourage investors to navigate their funds towards technology stocks and add value to the index.
Improvements in the semiconductor manufacturing and employment of artificial intelligence for sales and marketing processes are prominent examples of this in the past decade. Moreover, industry-wide concerns such as user privacy infringements can decrease the number of active users of online platforms like Facebook and Amazon, and thus repel the investors from the respective tech stocks.
The NASDAQ 100 Index Technical Analysis
While the fundamental information about the NASDAQ 100 index can help traders to realise how the events and happenings can create new trends, reinforce existing ones or reverse them, technical analysis can help establish the extent to which the trend can stretch.
The most important thing when doing technical analysis on the NASDAQ index is to understand the functions of analysing different time frames. The longer timeframes of monthly, weekly, and daily allow the traders to understand the market sentiment about the future of the NASDAQ 100 index. On the other hand, shorter timeframes such as 4-hour, 1-hour, 30-minutes and 15 minutes can reveal the course which the index will take while trying to achieve its long-term targets.
Different historical time frames usually serve to set support and resistance points – the price levels which the index struggled to break above or below in the past.
The Relative Strength Index (RSI) emerges as one of the most important technical indicators to employ for the NASDAQ 100 technical analysis. As a momentum oscillator, it measures the speed and intensity of change in the price by calculating the ratio between higher closes and lower closes in a 14-day timeframe. The RSI is scaled between 0 and 100.
When the RSI is above 70 (or 80) mark, it will signal an overbought market and investors would be encouraged to sell with the expectation that the momentum of long positions will fall. On the other hand, when the RSI is below 30 (or 20) mark, it will signal an oversold market and the tendency would be towards opening buy positions.
The NASDAQ Trading
The NASDAQ 100 index is a great addition to any trading portfolio that incorporates the US Dollar or the technology stocks as a prominent asset type. Capitalising on the record-breaking movements of the NASDAQ 100 index would require a good NDX trading strategy. AvaTrade offers state-of-the-art trading tools and a world-class education library for all traders to enjoy.
Now that we know how we can acquire and interpret information, let’s start to trade with confidence!Start using what you’ve learned about NASDAQ 100 Index!