NASDAQ Trading - How to invest in NASDAQ (US100) index?

The Nasdaq (US100) is one of the most widely followed stock indices by investors and analysts around the world, listed alongside the industrial Dow Jones (US30) and S&P (US500) indices. Due to the large number of companies from the technology sector, including young ones in the phase of dynamic development, the Nasdaq is sometimes regarded as an indicator of investor sentiment and the overall condition of the technology market. The index consists of the 100 largest listed technology companies in the US market. 

The NASDAQ is known for its high volatility and making bigger moves than other large indices like the Dow Jones or S&P 500. This is due to the fact that risky assets like shares of technology companies tend to be highly volatile and attract speculative capital. In addition, the progressive growth of technology adoption across continents can be considered as another factor causing such dynamics. Therefore, trading on NASDAQ is perceived as risky but enjoys enormous popularity around the world. In this article you will learn what the NASDAQ is, how to start trading on it and when is the best time to get interested in trading NASDAQ (US100).

What is the NASDAQ index?

Nasdaq is the second largest stock exchange in the world, second only to the New York Stock Exchange (NYSE). Technology giants such as Apple, Google, Microsoft and Amazon are listed on NASDAQ.  NASDAQ was established in 1971 and since then the number of companies listed on NASDAQ has grown to almost 4,000 listings, including many of today's largest corporations. The value of all these companies of course fluctuates with the world economy so the index price also fluctuates. 

Nasdaq made history when it introduced the idea of an electronic stock exchange in 1971, which caught the imagination of many investors. At the time, NASDAQ was the first electronic exchange to allow investors to buy and sell through an electronic computer-based system, as opposed to the physical trading floor of the New York Stock Exchange (NYSE). That’s why NASDAQ has a prestigious reputation as an innovative exchange, which is why many technology companies are choosing to move their listings to the NASDAQ.

The name of the NASDAQ index is an acronym for the National Association of Securities Dealers Automated Quotation. It refers to the origins when the exchange was founded by the National Association of Securities Dealers (NASD), the predecessor of the current Financial Industry Regulatory Authority (FINRA).

How does NASDAQ work?

NASDAQ is a modified capitalization-weighted index. The share weights in the index are based on their market capitalisation, with certain rules limiting the influence of the largest components. Thus, as a basis, the larger the capitalization of a company, the larger the share it has in the NASDAQ index, while the index does not include companies from the financial sector.

NASDAQ has stringent standards that companies must meet to be indexed:

• Being listed exclusively on NASDAQ.
• A public offering by the company in the US market for at least three months.
• Average daily trading volume of min. 200,000 shares.
• Regularly and carefully published quarterly and annual reports. 
• No bankruptcy proceedings initiated.

Composition of NASDAQ-100 index changes of course in case of delisting (moving listings to another exchange, mergers, takeovers, bankruptcies, exclusion from the index by NASDAQ due to non-fulfillment of requirements) but the index is also rebalanced once a year in December. NASDAQ stock exchange then reviews listed companies comparing them with others outside the index, re-classifies companies and makes adjustments. 

The NASDAQ may be also rebalanced quarterly but only in exceptional circumstances:

• When one company is worth 24% of the index
• When companies with a weighting of 4.5% or more make up 48% or more of the index

The index is rebalanced annually, after the quarterly rebalance only if:

• When one company is worth 15% of the index
• When five largest companies by market capitalisation have a weighting of 40% or more of the NASDAQ Index

There are two filters that NASDAQ uses to determine the market values of companies for its annual review:

• Share price as of the last trading day in October.
• Publicly announced share totals as of the last trading day in November.

Those companies that rank in the top 100 of all eligible companies in the index during the annual review are retained in the index. 

Companies in positions 101-125 are only retained if they were in the top 100 in the previous year. If they fail to move back into the top 100 in the annual review the following year, they are deleted. Those companies which aren’t in the top 125 are always dropped regardless of their position in the previous year.

The index also ejects a company if it does not match the index weighting by at least 1/10th of a percent at the end of two consecutive months. This can therefore occur at any time. Companies that are excluded from the index are replaced by those with the highest market value that are not yet in the index. 

Anticipation of these changes can lead to changes in the share prices of the companies affected. Typically, investors react very positively to news that a company's listing has been moved to the NASDAQ.

NASDAQ always publicly announces all index changes, regardless of when they occur, via press releases at least five business days prior to the change.

Type of positions on NASDAQ

When you want to start trading the NASDAQ index, there are two positions you can take: a short position or a long position. It is important to remember that major news that may affect the health of the economy tends to spike market volatility and the NASDAQ index is extremely sensitive to it. The position you choose to take will therefore depend on your outlook for the overall health of the economy and the direction of technology. 

Long position on NASDAQ

A long 'BUY' position is particularly popular when the market is in a good mood and investors feel safe or when there are external circumstances that can bring positive sentiment back into the market. This is when a rebound can be particularly dynamic.

In such a situation, if you assume that the economy may experience an improvement in investor sentiment following an economic or political event, you can take a long position on the NASDAQ. Usually risk-loving investors are very quick to return to their investments once the sun comes out for the market again.

If indeed market sentiment improves, your prediction will be correct and you will make a profit betting on the price increase of the NASDAQ index. Conversely, if you were to take a long position and the market fears a downturn, your position would likely record a loss.

Short position on NASDAQ

A short ‘SELL’ position is especially popular when there is fear and uncertainty in the market or when there are external circumstances that could cause negative sentiment to return.

In such a situation, if you assume that the economy may experience a sharp deterioration in investor sentiment following an economic or political announcement, you can take a short position on the NASDAQ. In this way, you can play out trading strategies for specific world events that could increase or significantly decrease asset price volatility. 

If fear is indeed present in the market, your prediction will be correct and you will make a profit by betting on a decline in the price of the NASDAQ index. Conversely, if you take a short position and the market is not expected to fall, your position will likely record a loss.

Best time to start trading NASDAQ

The NASDAQ index tends to make much larger movements than other US indices due to the nature of the companies listed on it. These are mostly technology companies, some of which are only on the road to profitability, just as companies such as Tesla or Amazon have been on that road for many years. Due to this fact in periods of panic or unstable situations in the world investors usually leave risky assets for some time and turn to more stable investments or cash. 

However, the index is prone to very dynamic price rebounds when positive sentiment returns to the market. This can be attributed to macroeconomic factors that are causing investors to return to investing in technology that drives human development. Meanwhile, it is the NASDAQ that is listing for many transparent and ambitious companies providing innovative solutions. It is therefore hardly surprising that capital is so keen to return to technology stocks, which are inherently more volatile than bank stocks or companies in the industrial sector.

Past performance is not necessarily indicative of future results, and any person acting on this information does so entirely at their own risk.

Despite higher volatility and risk, NASDAQ usually provides higher returns even than the S & P 500 index. Therefore, it can be said that some NASDAQ traders accept higher volatility at the expense of potentially higher returns. 

It is certainly a good time to be interested in NASDAQ index trading during panic periods, which cause a strong sell-off of shares of technology companies. Then, a large number of contrarian investors looking for a trend reversal may take important long 'BUY' positions in anticipation of a price rebound. Similarly, in the case of euphoria when the index is at historic highs, risk averse traders may look for a period of weakness in global markets to take short 'SELL' positions on the NASDAQ, betting on declines.

Interesting times to start trading NASDAQ are when the largest companies in the index release their quarterly or full year financial results, as well as world events that can cause high volatility, such as FED meetings, major political meetings or various military crises.

How to start trading NASDAQ (US100)?

NASDAQ trading is available in our xStation trading platform and You can start Your new technology index trading by entering into CFD (contract for differences) transactions on the US100 instrument and use the leverage potential. 

By trading NASDAQ you can take advantage of market volatility and open positions during very fast price movements. Leverage is very risky, but of course it can multiply a day trader's profits. Trading NASDAQ is dedicated to active traders who have no problem with price volatility.

Thanks to the 1:20 leverage, You will need only a 5 % margin to open a position. By using 1000 USD You will open a position which is worth 20 000 USD. Because of leveraged CFD instruments high risk level potential revenue of the position also can be high, but also potential loss is possibly higher as a result. NASDAQ (US100) CFD Trading gives traders the opportunity to open short and long positions. Short positions give traders the opportunity to make profits when market prices are falling.

If You want to read more about CFD and financial leverage You can read informations there: https://www.xtb.com/en/education/leveraged-trading

The only fees you incur for such trading are spread (difference between buying price ASK and selling price BID) and swap points. The spread is very small and costs cents depending on the size of your position. Swap points are the costs the broker incurs to fund leveraged positions; swaps are charged daily to the open position on the NASDAQ instrument.

By trading NASDAQ contracts you can take advantage of market volatility and open positions during very fast price movements. Leverage is a high risk instrument and may occur losses, but can multiply a day trader's profits.

Trading NASDAQ is speculative and for active traders only the price fluctuations matters on this instrument. This type of contract is a financial agreement which pays out the difference in settlement price between open and closed transaction without any physical delivery of the traded instrument. 

Online trading allows you to start trading NASDAQ without leaving home, with zero commissions and low spreads. Also due to the liquidity of the NASDAQ market you can close your position with one mouse click at any time when the market is open. This is why online NASDAQ (US100) contracts trading has so many advantages and is now increasingly popular. 

NASDAQ Stocks investment

Trading with leverage on indices carries a high risk of course, but well taken positions can give very high returns on such investment. For investors who are not very active and prefer only passive investment in the NASDAQ index we also offer ETFs giving exposure to the U.S. NASDAQ index such as iShares UCITS ETF NASDAQ 100 CNDX.UK, Invesco EQQQ NASDAQ 100 UCITS ETF EQQQ.UK or Beta ETF NASDAQ 100 BETANDX.PL. You can read more about investing in ETFs here: https://www.xtb.com/en/education/stocks-efs-definitions 

We also offer shares of companies listed on NASDAQ including Meta Platforms FB.US, Tesla TSLA.US, Amazon AMZN.US or Matterport MTTR.US and many other technology companies.

NASDAQ (US100) index price

The NASDAQ is well known as a very volatile instrument and the price can do big moves at any moment. That's why keeping track of the NASDAQ quotation is very important for traders. At xStation, we provide real-time quotes for future contracts on NASDAQ by offering US100 instrument.

NASDAQ Trading hours

What about available NASDAQ (US100) trading hours? This information is especially important for day traders. US100 trading is available 4 days per week from 00:05 CET to 23:00 CET with a short break between 22:15 CET to 22:30 CET from Monday to Thursday, and from 00:05 CET to 22:00 CET - on Friday. Trading US100 is not available during weekends on our platform. The US100 price is static when the market is closed. At all other times the prices are constantly fluctuating.

Of course the best time to start active NASDAQ (US100)  trading is during periods of very high volatility when investors feel extreme emotions and high volume enters the market. When fear or greed is in the market NASDAQ index volume increases. This situation is a big opportunity for risk likeable traders, who are using leverage to take large profits on long but also on short positions. 

Increasing fear could be influenced by publishing negative political or macroeconomic news. NASDAQ is one of the most volatile instruments. The index consists of US technology companies that tend to be very volatile and attract big speculative capital. When fear increases and is directly related to macroeconomic and political issues, e.g. information about the monetary policy of the FED or information about a global conflict or political crisis, technology companies start to fall. This happens usually because technology is perceived as risky investment and in moments of crisis situations investors close positions on risky assets. These factors can create a feeling of fear in investors, and this is always a sign of big moves on the NASDAQ. But upwards NASDAQ price moves can be also as dynamic when investors believe that the economy is stabilising; feeling safe they use to return to risky investments. 

This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory. 

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.