Investing in the Nasdaq Index - Trading Strategies and Index Features
Table of Contents
- Origins of the Nasdaq
- 5 curiosities about the NQ100
- NQ100 Holidays in the USA - 2021
- Composition of the Nasdaq 100
- Composition by sectors
- Other Nasdaq indices
- Evolution of the NQ100
- NQ100 Short Term CFD Trading Chart
- Correlations with the NQ100
- How to invest in the Nasdaq index
- Buying NQ100 CFDs
- Selling NQ100 CFDs
- Advantages of investing in the NQ100
- Trading Strategies for the NQ100
- How to trade NQ100 with CFDs - EXAMPLE
- NQ100 CFD trading conditions with Admiral Markets
What is the Nasdaq index? The Nasdaq index (NQ100) is one of the main indices of the US stock market. What are the 3 major stock indexes? These are:
- S&P 500
- Dow Jones Industrial Average
The Nasdaq index, also referred to as the Nasdaq 100, is a stock index that represents 100 large-cap companies. It is made up of the largest companies in the technology industry. It differs from the Dow Jones 30 and S&P 500 indices in the following ways:
- The composition of the NQ100 excludes financial companies and includes the largest companies in the technology industry.
- The NQ100 index includes non-US companies.
- Its value takes into account the market capitalization of the companies in the index.
Founded on January 31, 1985, this stock index is made up of 100 US stocks, including stock giants like Apple and Facebook.
Origins of the Nasdaq
To decide whether to invest in the Nasdaq index, it is very important to know its composition and what the composition is based on.
The NQ100 index was launched on January 31, 1985, by the Nasdaq stock market (National Association of Securities Dealers Automated Quotations) to differentiate itself from the NYSE (New York Stock Exchange).
For this, two indices were created: the Nasdaq 100 and the Nasdaq Financial 100, the latter made up of financial companies excluded from the former.
In January 1998, foreign (non-US) companies were listed on the NQ100. Since 2014, a single company can issue multiple classes of shares, so for a list of 100 companies, more than 100 shares can be issued.
➤ The NQ100 takes into account the market capitalization of the companies that make up the index. That is, a change of one dollar in the share of a large company, a Nasdaq mover, will therefore have a greater impact on the index than a change in the participation of a smaller company.
5 curiosities about the NQ100
✔️ How many companies are on the Nasdaq index? The number of companies that make up this index isn’t 100, but 103.
✔️ In the Nasdaq composition, there are no financial companies.
✔️ Since its inception in 1985, this index has had a younger brother, the Nasdaq Financial 100: all Nasdaq Financial 100 shares are issued only by financial companies.
✔️ From the original Nasdaq composition, only 5 companies remain on the current index: Apple, Costco, Intel, Micron Technology, PACCAR.
✔️ Although all Nasdaq stock was tech when the index was created, this sector now accounts for approximately 50% of Nasdaq shares.
NQ100 Holidays in the USA - 2021
When we operate with this index we must look at the US holidays in the economic calendar since the market will remain closed during those days:
- January 1 - New Year
- January 18 - Martin Luther King Day
- February 15 - President’s Day
- April 2 - Good Friday
- May 31 - Memorial Day
- July 5 - Independence Day
- September 6 - Labour Day
- November 25 - Thanksgiving Day
- November 26 - Early close (1:00pm)
- December 24 - Christmas Eve
Composition of the Nasdaq 100
What companies are in the Nasdaq index? The composition of the Nasdaq index is subject to change so the following list of Nasdaq index companies is valid as of the date of publication (source: Nasdaq.com / November 23, 2020).
The following table shows the 10 most valuable companies on the Nasdaq 100 index in terms of market capitalization:
|Position||Name/ticker||Market capitalization (dollars)|
|1||Apple / AAPL||2,034,363,475,600|
|2||Microsoft / MSFT||1,590,652,746,918|
|3||Amazon / AMZN||1,555,127,616,590|
|4||Alphabet (Google) / GOOG||1,178,463,086,816|
|5||Facebook / FB||768,184,533,369|
|6||Tesla / TSLA||464,101,677,884|
|10||Adobe / ADBE||222,071,511,610|
Composition by sectors
Let's look at what is included in this index. Although it is basically considered a technological stock index, and sometimes called the Nasdaq tech index, it includes companies from very diverse sectors. The weight of each of them is distributed approximately as follows (Source Nasdaq.com):
- Technology: 54%
- Consumer Services: 24%
- Health: 11%
- Consumer goods: 5%
- Industrial: 4%
The NQ100 includes 103 shares, not 100, because three of its components issue 2 classes of Nasdaq stock. These are Alphabet (Google), Liberty Global, and 21st Century Fox.
Other Nasdaq indices
In addition to the NQ100, other indexes to highlight in this market are:
- Nasdaq Financial 100. It includes all financial companies excluded from the Nasdaq 100.
- Nasdaq Composite Index. What is the Nasdaq Composite Index? This includes all companies that are listed on the Nasdaq stock market. So, how many companies are in the Nasdaq Composite Index? It totals more than 5,000.
- Nasdaq Biotechnology Index. This is a stock market index consisting of securities of companies listed on the Nasdaq, classified as either a part of the Biotechnology or Pharmaceutical industry, according to the Industry Classification Benchmark. It contains 213 components.
Next, we will observe the evolution of the NQ100 over time. If you want to see its price in real-time, you can download the MetaTrader 5 trading platform for free:
Evolution of the NQ100
Let's see the evolution of the NQ100 in the Stock Market in the last 5 years with this Nasdaq index live chart:
Source: Admiral Markets MT5, NQ100, Weekly chart. Data range: September 20, 2015, to November 23, 2020. Chart prepared on September 23, 2020. Please note that past performance is not a reliable indicator of future results.
As we see on the Nasdaq chart, this index is in a long-term uptrend.
Within this upward trend, two corrections or price falls can be observed:
- Mid 2018
- In February/March 2020 as a result of the coronavirus and the situation of fear and uncertainty that this caused.
However, the price managed to recover from this latest drop, reaching an all-time high in August 2020 at around 12,465. At the beginning of November, the price again approached that level. This represents an approximate rise in the value of the index of 65%. At the time of publication of this article (February 23, 2021), the Nasdaq stock index today is at 13,069 points.
But let's take a closer look at a Nasdaq index chart to decide whether to invest in the NQ100.
NQ100 Short Term CFD Trading Chart
Source: Admiral Markets MT5, NQ100, Daily chart. Data range: December 12, 2019, to November 23, 2020. Chart prepared on November 23, 2020. Please note that past performance is not a reliable indicator of future results.
As can be seen in the graph, during February and March 2020, there was a big drop in the Nasdaq index share price.
The spread of the coronavirus from China to the rest of the world until it became a pandemic caused one of the biggest earthquakes in the equity markets with some indices registering the biggest drops in their history or in recent years. This index, being a part of a globalized market, is no stranger to investor panic.
However, as we have already discussed, the price recovered. If we add the Fibonacci retracement indicator we can see how the price, after reaching an all-time high, repeatedly returned to the level of 23.6.
It was in a moment of laterality. The price could have headed back to the all-time high to try to break above it or back to the Fibonacci levels.
At the time of publication of this article (February 23, 2021), the Nasdaq stock index is at 13,069 points.
Whether you are asking yourself, "What will the Nasdaq do today?" or "What will the Nasdaq do in the long term?", you'll have to be very aware of all the economic news that may affect its price to decide whether it is a good idea to invest in this index or not.
Correlations with the NQ100
Source: MT5SE Admiral Markets. Matrix Correlation screenshot. Prepared on November 24, 2020
In the image above we can see the correlation between these stock indices on November 24, 2020.
As we can see, there is a strong positive correlation, with a score above +85 with the S&P500, DJI30, DAX30 and JP225, which indicates that when a movement appears in one of the indices, the other will have a good chance of following the same trend.
This can help you make a decision to invest in the Nasdaq index, based on other assets.
To use the Correlation Matrix you need to have the MetaTrader Supreme Edition downloaded. Is free!
How to invest in the Nasdaq index
Trading this index means speculating on both bullish and bearish movements to exploit economic cycles:
- The moments when this group of 100 companies thrive
- The times when this same group goes through difficult times
Therefore, the trader will always have the opportunity to profit or limit losses in the event of bad sessions, as you can go both short and long. We explain it below.
Buying NQ100 CFDs
Let’s look at how to buy the Nasdaq index. Do you think the US economy is stable and will even continue to hit new all-time highs? In that case, investing in this index may be an option to consider.
Let's take the example of an intraday trader who wants to speculate higher during trading sessions. These are the steps to follow:
- Look for the Nasdaq symbol in the Market Watch table
- Drag it to the chart
- Press the new order button. Enter the volume, stop loss, take profit, etc.
- Click Buy
In a rising market, the chances of success are higher if you try to speculate only in this direction. This is logical, but essential.
Traders who practice both scalping and intraday trading can take advantage of this trend during a trading session in the United States.
Are you one of those who think that the next financial crisis is looming? If so, don't miss out on the next section!
Selling NQ100 CFDs
Do you think that the world's leading economy is overvalued and that the index may fall? Find out how you can sell this index. It’s very simple, you just have to follow the steps described above to buy CFDs on this index.
The only difference is that:
- The activation of a sell order to speculate on the fall of a CFD on the index is carried out using the "Sell" button
Advantages of investing in the NQ100
- The US stock market opens at a fixed time and closes at a fixed time, similar to the foreign exchange market, where it is possible to operate throughout the week, since the closing only takes place on Friday night. Therefore, your trading session can extend throughout the trading hours of the NQ100 in real-time on our online MT4 or MT5 Supreme Edition trading platforms.
- You can benefit from the opening movements of the stock market and the strategies developed around the opening gaps and market ranges. We advise beginner traders not to follow these types of strategies, as they carry great risk and could lead to large losses.
- You can enjoy a competitive spread to be positive as quickly as possible when you open your trading operations.
- When trading a financial product related to the economy and current events of American companies, this allows stock market enthusiasts to invest in the Nasdaq index easily and quickly.
For those who feel that investing in the Nasdaq index can be risky, we recommend that they continue to learn with our free online trading webinars:
Trading Strategies for the NQ100
Scalping and Day Trading the NQ100
For active traders who want to get results quickly, scalping and intraday trading allow them to work on short time horizons, on the same day.
Be careful, the results obtained in a very short period of time using these trading approaches can obviously be both good and bad, but that will essentially depend on you.
Some traders have specialized in trading on the economic calendar, allowing them to further reduce their time spent on pure trading.
With this approach, your sessions will be clearly defined and the time you spend in front of the screen is considerably reduced.
Whether it is active trading or investing in this index through swing trading, discipline, knowledge and experience gained in the CFD markets are essential to preserving your capital, but also to making it grow.
Swing trading on the NQ100
For those who already have a full-time job or who want a more considerate and calm activity, swing trading is another very advantageous solution.
The swing trader will only spend a short time in front of these screens. The idea is mainly to find the right trading opportunities on quite large time frames like the H4, daily and weekly charts.
It’s best to practice with a demo trading account. It is free and you operate with virtual funds, so it doesn’t involve any risk:
How to trade NQ100 with CFDs - EXAMPLE
Swing Trading is probably the style that best suits the investor's profile when it comes to trading CFDs. The strategy presented in this article is an active swing trading method.
What do we mean by active?
This simply means that it’s swing trading that will offer you more trading opportunities than the average one since it’s applied to an H4 chart, where each candle represents 4 hours of trading.
Source: Admiral Markets MT5, NQ100, Chart H4. Data range: August 20, 2020, to November 23, 2020. Chart drawn on November 23, 2020. Please note that past performance is not a reliable indicator of future results.
➨ Indicators: The Ichimoku Kinko Hyo Indicator and Parabolic SAR on MT4 or MT5
➨ Trading hours: In 4-hour intervals during the day. That is, twice a day, at 8 o'clock in the morning and at 8 o'clock in the afternoon, time on the MetaTrader 5 platform.
➨ Long position (buyer): The price must have reached the upper SAR point when Tenkan-sen is higher than Kijun-sen.
➨ Short position (seller): The price must have reached the lowest SAR point when Tenkan-sen is lower than Kijun-sen.
➨ Stop Loss Position: Whether it is a long or a short position, the Stop Loss is always behind the latest highs or lows.
➨ Take Profit Position: Whether it is a long or short position, the first Take Profit is placed at a ratio of 1:1.
➨ Position management: The trailing stop will intervene as soon as the first objective is reached. Part of the position may continue to trend towards a structural level or against the trend.
To learn how to trade the NQ100 and the financial markets, we recommend you train yourself properly and practice with a demo account, before diving fully into real trading.
NQ100 CFD trading conditions with Admiral Markets
Is it safe to invest in the NQ100? Don't worry, at Admiral Markets we offer the following advantages:
✔️ Typical spread on CFDs on the NQ100: 0.8 points
✔️ Mini lots available in CFDs on this stock index: you can trade from 0.1 lots with 0.10 dollars per point.
✔️ No commission costs per operation: with Admiral Markets you will only pay the spread of the index.
✔️ Direct market execution on all market orders you open.
✔️ There is no minimum distance to set Stop Loss (SL) and Take Profit (TP) on the Nasdaq 100 index.
✔️ Access to leverage (well-established risk management is highly recommended when using leverage).
✔️ Trading the Nasdaq index up and down to take advantage of both the growth of the US economy and the correction periods.
✔️ Extended trading hours in the CFD on the Nasdaq index, so you can enjoy the market even at night, with a very attractive spread.
✔️ "Negative Balance Protection Policy" protects you against a negative account balance.
✔️ One of the best regulations in the world of online trading - FCA Regulation in the UK
✔️ Free deposits and withdrawals, bank transfer, Skrill and instant transfers (more information in the Deposits and Withdrawals section)
✔️ Coverage is possible and allowed
✔️ All styles of trading are accepted - there are no limits for Expert Advisors (EAs).
If you want to get practice in trading without risking your capital, you can start by opening a demo account, and later open your real account.
CFDs on this index and on a Nasdaq index ETF or Nasdaq index fund (Nasdaq 100 index fund) allow you to participate in the US stock market during both up and down movements. Also, index trading can be interesting because you don't have to worry about choosing individual stocks to buy.
In the case of the NQ100, instead of choosing between Apple and Facebook, you have the opportunity to trade both, as well as the other 98 stocks that make up this index. Additionally, you can also take advantage of and invest in Nasdaq IPOs.
Other articles that may interest you:
- Copy Trading With MetaTrader: How to
- Social Trading for Dummies: What it is and how it works
- The Virtual Portfolio - Learning how to trade
About Admiral Markets
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