What is the NASDAQ 100 and how to trade it? - Index Series

Education / 5 Min Read
Milan Cutkovic / 30 Nov 2021

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 stock index in the world: the NASDAQ 100. Widely seen as the leading benchmark for the largest U.S. non-financial companies, there are multiple ways you can start index trading today to gain exposure to the NASDAQ 100. Before we discuss how to trade indices like the NASDAQ 100, let us have a look at what this index represents and the largest companies included 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 used 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-market trading 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 the NASDAQ 100 is heavily dominated by the technology sector, which makes up almost 60% of the index. Buying the index is therefore often seen as a bet on the U.S. technology sector.

NASDAQ 100 sectors shown in a pie chart

Source: Nasdaq

NASDAQ 100 share price

The NASDAQ 100 all-time high currently stands at 16,674 points. The 52-week low is 11,878 points.

The index has seen a remarkable performance in the past decade, as seen in the chart below.

NASDAQ 100 price on trading chart

 

How to trade NASDAQ 100?

Contract for Difference (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 (USTECH) 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 the 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 from trading the index itself, Axi also offers commission-free share CFDs. 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.

  Trading the NASDAQ 100 Investing in the NASDAQ 100
Ways to trade Cash CFD, Futures CFD ETFs, Investment Funds
Market hours 18:00 Sunday to 16:59 Friday (ET) with trading breaks between 16:15 to 16:30 and 16:59 to 18:00 9:30 AM to 4 PM (ET)
Initial capital required 0.5% 100%
Losses can exceed deposits Yes No

Read more → 17 Best technical indicators used in trading

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, 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.

NASDAQ 100 performance

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?

NASDAQ has several eligibility criteria that companies need to meet to be part of the NASDAQ 100 index:

  • 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

NASDAQ picks the constituents for the index once per year, in December. The index 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 entire index. While some investors don't mind the fact that the index is heavily dominated by only 10 companies, others might prefer indices that are more balanced.

List of NASDAQ 100 companies

Ticker Company Name
AAPL Apple Inc. Common Stock
ADBE Adobe Inc. Common Stock
ADI Analog Devices, Inc. Common Stock
ADP Automatic Data Processing, Inc. Common Stock
ADSK Autodesk, Inc. Common Stock
AEP American Electric Power Company, Inc. Common Stock
ALGN Align Technology, Inc. Common Stock
AMAT Applied Materials, Inc. Common Stock
AMD Advanced Micro Devices, Inc. Common Stock
AMGN Amgen Inc. Common Stock
AMZN Amazon.com, Inc. Common Stock
ANSS ANSYS, Inc. Common Stock
ASML ASML Holding N.V. New York Registry Shares
ATVI Activision Blizzard, Inc. Common Stock
AVGO Broadcom Inc. Common Stock
BIDU Baidu, Inc. ADS
BIIB Biogen Inc. Common Stock
BKNG Booking Holdings Inc. Common Stock
CDNS Cadence Design Systems, Inc. Common Stock
CDW CDW Corporation Common Stock
CERN Cerner Corporation Common Stock
CHKP Check Point Software Technologies Ltd. Ordinary Shares
CHTR Charter Communications, Inc. Class A Common Stock New
CMCSA Comcast Corporation Class A Common Stock
COST Costco Wholesale Corporation Common Stock
CPRT Copart, Inc. (DE) Common Stock
CRWD CrowdStrike Holdings, Inc. Class A Common Stock
CSCO Cisco Systems, Inc. Common Stock (DE)
CSX CSX Corporation Common Stock
CTAS Cintas Corporation Common Stock
CTSH Cognizant Technology Solutions Corporation Class A Common Stock
DLTR Dollar Tree Inc. Common Stock
DOCU DocuSign, Inc. Common Stock
DXCM DexCom, Inc. Common Stock
EA Electronic Arts Inc. Common Stock
EBAY eBay Inc. Common Stock
EXC Exelon Corporation Common Stock
FAST Fastenal Company Common Stock
FB Meta Platforms, Inc. Class A Common Stock
FISV Fiserv, Inc. Common Stock
FOX Fox Corporation Class B Common Stock
FOXA Fox Corporation Class A Common Stock
GILD Gilead Sciences, Inc. Common Stock
GOOG Alphabet Inc. Class C Capital Stock
GOOGL Alphabet Inc. Class A Common Stock
HON Honeywell International Inc. Common Stock
IDXX IDEXX Laboratories, Inc. Common Stock
ILMN Illumina, Inc. Common Stock
INCY Incyte Corp. Common Stock
INTC Intel Corporation Common Stock
INTU Intuit Inc. Common Stock
ISRG Intuitive Surgical, Inc. Common Stock
JD JD.com, Inc. American Depositary Shares
KDP Keurig Dr Pepper Inc. Common Stock
KHC The Kraft Heinz Company Common Stock
KLAC KLA Corporation Common Stock
LRCX Lam Research Corporation Common Stock
LULU lululemon athletica inc. Common Stock
MAR Marriott International Class A Common Stock
MCHP Microchip Technology Incorporated Common Stock
MDLZ Mondelez International, Inc. Class A Common Stock
MELI MercadoLibre, Inc. Common Stock
MNST Monster Beverage Corporation
MRNA Moderna, Inc. Common Stock
MRVL Marvell Technology, Inc. Common Stock
MSFT Microsoft Corporation Common Stock
MTCH Match Group, Inc. Common Stock
MU Micron Technology, Inc. Common Stock
NFLX Netflix, Inc. Common Stock
NTES NetEase, Inc. American Depositary Shares
NVDA NVIDIA Corporation Common Stock
NXPI NXP Semiconductors N.V. Common Stock
OKTA Okta, Inc. Class A Common Stock
ORLY O'Reilly Automotive, Inc. Common Stock
PAYX Paychex, Inc. Common Stock
PCAR PACCAR Inc. Common Stock
PDD Pinduoduo Inc. American Depositary Shares
PEP PepsiCo, Inc. Common Stock
PTON Peloton Interactive, Inc. Class A Common Stock
PYPL PayPal Holdings, Inc. Common Stock
QCOM QUALCOMM Incorporated Common Stock
REGN Regeneron Pharmaceuticals, Inc. Common Stock
ROST Ross Stores, Inc. Common Stock
SBUX Starbucks Corporation Common Stock
SGEN Seagen Inc. Common Stock
SIRI Sirius XM Holdings Inc. Common Stock
SNPS Synopsys, Inc. Common Stock
SPLK Splunk Inc. Common Stock
SWKS Skyworks Solutions, Inc. Common Stock
TCOM Trip.com Group Limited American Depositary Shares
TEAM Atlassian Corporation Plc Class A Ordinary Shares
TMUS T-Mobile US, Inc. Common Stock
TSLA Tesla, Inc. Common Stock
TXN Texas Instruments Incorporated Common Stock
VRSK Verisk Analytics, Inc. Common Stock
VRSN VeriSign, Inc. Common Stock
VRTX Vertex Pharmaceuticals Incorporated Common Stock
WBA Walgreens Boots Alliance, Inc. Common Stock
WDAY Workday, Inc. Class A Common Stock
XEL Xcel Energy Inc. Common Stock
XLNX Xilinx, Inc. Common Stock
ZM Zoom Video Communications, Inc. Class A Common Stock

 

Looking to learn more about other indices:

 

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The 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. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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