NASDAQ-100: How to Invest or Trade the Index

NASDAQ-100: How to Invest or Trade the Index

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In this overview, we will get acquainted with a popular stock index NASDAQ-100. This is the index of high-tech companies that is one of the top-three US indices.

History of NASDAQ stock exchange

The NASDAQ (National Association of Securities Dealers Automated Quotation) stock exchange is one of the leading US exchanges; it was founded in 1971 and specializes in the stocks of high-tech companies. The name of the exchange is the abbreviation of the name of a quotation system that was used for identifying the quotations of stocks and other calculations were carried out.

The exchange was “born” as early as 1939, right after the enactment of a law that made all brokers who were out of functioning exchanges, unite in self-regulated institutions. This is how the NASD (National Association of Securities Dealers) was created. It united the participants of the US OTC stock market.

In the 1960s, the stock market was being systematized and automatized actively. Thanks to the development of computer technology, an OTC electronic system of trading stocks was created. It was called NASD Automated Quotations (NASDAQ). Later, thanks to all trading operations having been computerized, NASDAQ became the first electronic stock exchange in the world.

Nowadays, NASDAQ is one of the largest world exchanges. It specializes in operations with the stocks of high-tech and software development companies. NASDAQ lists the stocks of more than 4,000 companies; also, it calculates stock indices for different sectors of the economy.

Based on the stocks traded in NASDAQ, a whole range of stock indices in different sectors of the economy is calculated, such as NASDAQ Composite, NASDAQ Bank Index, NASDAQ Computer, NASDAQ -100, NASDAQ Biotechnology, and more. Let us discuss three popular indices.

NASDAQ Composite

This is the very first index that appeared in NASDAQ: it is based on the growth of all companies listed in the exchange. NASDAQ Composite is calculated by the method of weighted market capitalization. This means that the largest companies traded in the exchange influence the final result more than others.

This might be the main composite index of NASDAQ. The popularity of the index was somewhat deteriorated by the so-called “dotcom collapse” - the swift falling of the computer and IT market in 2000-2001. As a result, the index slumped and could not restore for a long time, so that NASDAQ-100 became the most attractive index.

NASDAQ-100

This index that appeared in 1985 is a modified weighted index tracking more than 100 largest non-financial companies of NASDAQ. It is often interpreted as a “tech” index because of the presence of such companies in it.

NASDAQ-100 includes such giants as Amazon, Apple, Tesla, Alphabet (Google), Facebook, Cisco, Intel, Microsoft, Adobe, Netflix. Almost all the companies in the index feature innovations, speedy growth, global attractiveness, and liquidity. All this made NASDAQ-100 a kind of a “barometer” of the high-tech sector and a popular financial instrument.

NASDAQ Biotechnology

This is a younger but still popular index that includes the stocks of biotech and pharmaceutical companies in NASDAQ. Currently, the index includes stocks of over 200 companies. Being a weighted index in terms of capitalization, NASDAQ Biotechnology has been estimating the situation in US medicine and healthcare since 1993.

Trading strategies in NASDAQ-100

As noted above, NASDAQ-100 is one of the largest world stock indices, popular among traders and investors. It can be traded by various financial instruments: futures, special funds, CFDs – depending on your broker. Have a look at the main strategies.

Long-term trading – investing

This must be the most popular strategy of trading NASDAQ-100. The main principle is as follows: wait for a correction and buy the index at the beginning of a new wave of growth as we expect it to renew the highs. This is quite a simple strategy but you have to be patient to let your profit grow to the desired level.

For example, you could by NASDAQ-100 in March this year, at the falling of stock indices provoked by the coronavirus epidemics. Winding up the decline, the index reversed upwards and in six months renewed its all-time high, almost doubling its quotation from the year’s lows.

Of course, we should remember that the growth was rather abnormal, explained by a huge money inflow from the Fed. In normal circumstances, you have to wait longer.

Nasdaq-100: long-term trading – investing

Medium- and short-term trading

As a rule, such trading requires leverage. Short-term trading presumes holding a position for one or several days; medium-term trading – from a day to several months. Swing-trading, day-trading, scalping – all these types of trading can be used for NASDAQ-100.

Apart from stock market news, your decisions should be based on tech analysis. Support/resistance levels and lines, price patterns, candlestick combinations, Price Action patterns, indicators – all these means help find good trading opportunities.

Entering a position (for example, based on a tech analysis pattern) by an increased lot (with leverage), with small goals and risk control is the main principle of short-term trading.

Nasdaq-100: medium- and short-term trading

👉 Trade the Nasdaq-100 (NAS100) Index, which you can find on the R Trader platform among the 12,000 instruments available for trading.

Bottom line

The NASDAQ-100 index is calculated based on the results of about 100 largest non-financial companies. This is one of the leading stock indices, reflecting the state of the tech sector of the world economy. NASDAQ-100 is a popular instrument among investors. Still, it can be used for short-term marginal trading using modern methods of tech analysis and controlling risks.




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