Trading NASDAQ 100
The Nasdaq is a benchmark index for US technology stocks and a global electronic marketplace for buying and selling securities. The term Nasdaq also refers to the Nasdaq composite, which is an index of over 3,000 stocks that are listed on the Nasdaq exchange.
However, there is a difference between the Nasdaq composite and the Nasdaq 100 which is made up of the 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 strict liquidity requirements and adhere to corporate governance standards.
NASDAQ 100 History
The Nasdaq 100 was launched on 31 January 1985, by the Nasdaq Stock Exchange and started off with two separate indices: The NASDAQ-100 consists of retail, technology, telecommunication, health care, transport, etc. and the NASDAQ Financial-100 consists of banking, insurance firms, mortgage and brokerage houses.
By creating two indices the NASDAQ wanted options and futures contracts to 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 to 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, standing above the 4,700 level in 2000. In 2002 the markets started reacting to the recession, the September 11 attacks and the Afghan War, that saw the index drop to the 900-point leveld.
The recovery took 5 years and eventually the index corrected itself on February 16, 2001 to a high of 2,239.51 points.
The Late-2000s recession saw the housing bubble and Global Financial Crisis of 2008, with a correction at below the 2,000-point level.
While the Nasdaq 100 also experienced a limit down on the 24th of October 2008, on November 20, 2008 the index reached a 6-year intraday low of 1,018.
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 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 Exchange, and it is calculated based on a modified market capitalization-weighted methodology.
Every quarter the Nasdaq is reviewed, and the composition of the Nasdaq 100 index weightings are adjusted according to its components by means of a proprietary algorithm. If the composites do not meet pre-defined weight distribution requirements, they are excluded.
Top 10 companies represented by NASDAQ 100 and their index weighting (%)
|Cisco Systems Inc||2.7%|
Factors that influence the overall 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.
As opposed to broader market indices like the Russell 2000 index, the main factors that influence Nasdaq stocks are heavily skewed towards the technology sector. The stocks are more volatile and change direction quickly.
Another wise move is to monitor the dollar index that reflects USD strength, which affects American companies.
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
- Trading on margin allowed
- The minimum trade size is 1 unit
- The currency of the Nasdaq 100 is the US Dollar
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