NASDAQ 100 Chart
The Nasdaq Composite is one of the three most popular U.S. indices along with the S&P 500 and Dow Jones Industrials. The index consists of stocks which trade on the NASDAQ, which stands for the National Association of Securities Dealers Automated Quotations system. The Nasdaq Composite Index is heavily weighted with technology-related companies, accounting for over 40% of the index. The index includes over 2,500 companies, and like most other global indices it is weighed by market capitalization.
It is calculated as the aggregate adjusted market value divided by a divisor. The top 100 companies make up most of the Nasdaq Composite’s market capitalization, also known as the Nasdaq 100. The Nasdaq 100 consists of the largest domestic and international non-financial companies listed on the NASDAQ, and is also a market capitalization-weighted index. The Nasdaq Composite began trading on February 5, 1971 at a base value of 100.
How to Trade the Nasdaq Composite Index
The most popular way to trade the Nasdaq Composite in the futures market is via the Nasdaq 100 e-mini contract, which trades on the Chicago Mercantile Exchange (CME). The exchange code name is “NQ”. The notional value of the contract is calculated by multiplying the current price of the Nasdaq 100 by $20. The smallest tick size is 0.25 index points, or $5 per contract. Margin, also known as a performance bond, is set at a fraction of the index’s full value and determined by the exchange. The margin requirement for the contract is relatively small and thus accessible to the smaller trader.
Liquidity is very good and the contract trades almost 24-hours per day, 5 days per week. Liquidity is highest when the cash market is open from 9:30am-4:00pm EST.
There are four expiration months – March, June, September, and December.
Exchange Traded Fund (ETF)
The PowerShares QQQ Trust, Series 1 ETF known by the ticker symbol – QQQ – is a very popular way for market participants to trade the Nasdaq Composite, as it tracks the Nasdaq 100. Traders often refer to the QQQ as simply the “Qs”.
The QQQ ETF trades during normal stock exchange hours from 9:30am – 4:00pm EST, as well as extended pre and post-market exchange hours. The QQQ is very liquid.
The QQQ requires less capital than futures, but cannot be traded around the clock, so the trader is exposed to gap risk. It is accessible to most individuals without having to be pre-qualified to trade futures or options. Like futures, traders can take advantage of price fluctuations in both directions by buying or shorting. Leverage is much lower than what is provided via futures, options, or CFDs.
These are funds which have portfolios which mimic the price fluctuations of the Nasdaq. These are less popular than the broad-based S&P 500. They have low turn-over and thus charge lower fees than other types of funds. Index funds are meant for the long-term investor, and not used as an active trading vehicle. Generally, index funds are long-only.
Options are available for both futures and the ETF. It is suggested that one familiarize themselves with how options work before trading them. This is one of the least capital intensive ways to trade the Nasdaq, as options premiums can be as low as a few dollars per contract. Traders can use options as a hedge or to speculate on the direction of the index, both up and down.
Contract for Difference (CFD)
This instrument was designed with the small trader or investor in mind. CFDs are constructed with futures contracts, but made into smaller contracts which require significantly less margin than futures contracts. Just like futures, these trade nearly 24-hours a day, 5 days a week. Most traders in the world outside of the United States have access to a broker who offers CFDs. These can be traded in both directions, long and short.
What Impacts the Nasdaq Composite?
Macro-economic conditions weigh significantly on this index than other highly correlated U.S. indices. The direction of the US economy and the Federal Reserve’s position on monetary policy have a large impact on all U.S. equity indices.
The Nasdaq Composite is driven by technology stocks, but other sectors matter, too. The index is made up of 43% technology, 21% consumer services, 14% health care, 8% financials, 6% consumer goods, 6% industrials, and a few much smaller sectors. (As of August 2016.)
The top 100 stocks dominate the index and is highly concentrated. The Nasdaq 100 consists of the largest NASDAQ non-financial companies, and makes up the majority of the weighting for the broader Nasdaq Composite. The Nasdaq 100, itself, has nearly 40% of its weighting in five names – Apple, Alphabet Inc. Class A, Microsoft, Amazon, and Facebook. (As of August 2016.)
Earnings are reported on a quarterly basis each year. The majority of the companies report results in the month following the end of its latest fiscal quarter – April, July, October, and January. Due to the high concentration at the top, the biggest companies can have a material impact on price fluctuations of the index following the release of earnings.