NASDAQ-100:
A Beginner's Guide to Trading and Investing
If you’re a beginner trader, you may have come across the NASDAQ-100 index but aren’t entirely sure what it entails. This article will provide a comprehensive overview of the NASDAQ-100 index and offer insights on how to trade or invest in it effectively. Below, you’ll also find a live chart of the NASDAQ-100 index and learn about a straightforward trading strategy.
Why Invest in the NASDAQ-100 with WisunoFX?
Customer Services
Enjoy 24/5 localized one-on-one customer support, along with access to various tools and educational resources.
Tight Spreads
Benefit from highly competitive spreads when trading the NASDAQ-100.
Effective Risk Management
Utilize risk management tools, such as stop-loss and limit orders, to protect your investments.
Zero Commission
Take advantage of tight competitive spreads, meaning you pay less to open a position.
The NASDAQ-100 index is a composite stock market index that measures the performance of the top 100 small-cap non-financial companies in the United States. It includes companies from a variety of sectors:
Financial companies are tracked separately in the NASDAQ Financials-100 index, which includes sectors such as:
Launched in January 1985 by the National Association of Securities Dealers Automated Quotations (NASDAQ), the NASDAQ-100 began with a baseline price of 250. It reached 800 by December 1993 but required a reset due to its growth. Options for the NASDAQ-100 were introduced on the Chicago Board Options Exchange (CBOE) in 1994, and by 1998, foreign companies were allowed entry as American Depository Receipts (ADRs).
Since its inception, the NASDAQ-100 index has consistently increased in value each year, with only a few notable exceptions: the dot-com bubble burst in 2000, the aftermath of the September 11 terrorist attacks in 2001-2002, the global financial crisis in 2008, and the US-China trade war in 2018, which are the only years in which the index closed lower than the previous year.
NASDAQ-100 futures are contract-for-difference (CFD) assets designed to continuously track the price changes of the NASDAQ-100 index. They allow investors to trade the index both during and outside of official trading hours by tracking pre-market and after-hours trading.
Composition:
The index features the top 100 small-cap stocks from sectors such as technology, biotechnology, and other non-financial industries.
Launch:
Trading on NASDAQ-100 futures commenced on the Chicago Mercantile Exchange (CME) in 1996, with an initial value of 100 times the NASDAQ-100 index. The introduction of e-mini NASDAQ-100 futures (priced at 1/20th of the index) increased retail participation due to lower capital requirements.
Contract Specifications:
The contract size is $20 per contract, with a tick value of 0.25 points (equal to $5) and trading hours from 17:00 to 16:00 the following day. Micro e-mini contracts are also available on some retail platforms.
Leverage:
NASDAQ-100 futures are leveraged contracts, allowing traders to hold larger positions with a fraction of the initial capital required.
How to Invest in the NASDAQ-100 Like a Pro - 3 Simple Steps
1. Selecting a Suitable Broker
Choose a regulated broker that offers a reasonable minimum deposit and contract sizes that align with your risk exposure. For instance, WisunoFX provides a minimum spread of 2.5 points, a minimum trade size of 0.01 lots, and a maximum lot size of 30 lots with a pip value of $10 and 1:100 leverage.
2. Opening and Funding a Trading Account
Open an account with your chosen broker and fund it appropriately.
3. The Trading Process
NASDAQ-100 futures are available for trading 23 hours a day. The most volatile times are typically the hour before and after the underlying index opens, as well as shortly before/after major news releases (e.g., Fed interest rate decisions, inflation data).
The NASDAQ-100 is ideal for day traders and scalpers due to its potential for significant price movements, but caution is advised for undercapitalized traders.
Cashing Out Your Earnings: Consider a compounding strategy where you may operate two accounts—one for quick cashouts and another for reinvesting profits to achieve larger returns. Online calculators can help with compounding strategies.
Is NASDAQ-100 a Good Investment?
Absolutely! Trading the NASDAQ-100 index is an excellent choice, particularly in the current inflationary environment. With record-high global inflation leading to hawkish central bank actions, the NASDAQ-100 presents unique trading opportunities due to its sensitivity to monetary policy changes.
Intraday Strategies
Focus on short-term price movements using various techniques like candlestick patterns and pivot points.
News Trading Strategies
Capitalize on high-impact news releases (e.g., consumer inflation data, Non-Farm Payrolls) to trade the NASDAQ-100 index.
Swing Trade Strategies
Hold positions for several days, capitalizing on larger price movements. While swing trading incurs fewer costs, it requires a solid understanding of market volatility and the potential for significant drawdowns.
NASDAQ-100 Forecast and Technical Analysis
Forecast Factors:
The NASDAQ-100's trajectory will depend on two key factors: the US Federal Reserve’s monetary policy and geopolitical events. The anticipated rate hikes may lead to corrections, and Fibonacci retracement levels (e.g., 50%, 61.8%, and 78.6%) could indicate potential downside targets.
Long-Term Outlook: Despite short-term volatility, the long-term forecast for the NASDAQ-100 remains bullish, as evidenced by its historical upward trend since 1985.
Technical Analysis Strategy:
1. Identify demand and supply zones on the NASDAQ-100 chart using a 1-hour timeframe.
2. Utilize a 1-minute or 5-minute chart to trade within these zones, looking for signals like RSI divergence or candlestick reversal patterns.
3. Limit risk to no more than 3% of your account on a single trade.
4. Set realistic exit points based on market conditions and reversal signals.
NASDAQ-100 1-Hour Chart: Supply and Demand Zones
The 1-hour chart of NASDAQ-100 futures illustrates key supply and demand zones:
Demand Zone:
This area represents price levels where candlesticks form lows. Traders look to enter long positions when the price returns to this zone.
Supply Zone:
This area indicates where price candles form highs. Traders seek to sell when the price reaches this zone, as further pushes into the supply zone often trigger sell signals.
Market Reaction to Economic Data
When significant economic reports, such as the US CPI report, are released, they can influence market expectations and trading decisions. For instance:
On the day of the report, Core CPI was reported at 0.7%, up from 0.6% the previous month and exceeding the market expectation of 0.5%. This higher-than-expected core CPI reinforced market expectations for a Federal Reserve rate hike at its July 28, 2022 meeting—an event perceived as negative for the NASDAQ.
NASDAQ-100 5-Minute Chart: Sell Entry Opportunities
As the price approached the supply zone at 12,000, it subsequently dropped to 11,800 before revisiting the supply zone, presenting a selling opportunity. Ultimately, the trade concluded in the demand zone at 11,500, resulting in a 500-point move.
To qualify for listing on the NASDAQ-100, companies must meet general listing rules and at least one of the specific criteria outlined below:
1. Bid Price:
Shares must not fall below $4; if priced at $2 or $3, the company must have at least three market makers.
2. Public Shares:
At least 1,250,000 publicly traded outstanding shares (excluding major shareholders).
3. Shareholder Requirement:
A minimum of 2,200 shareholders owning 100 shares or more, or 500 shareholders trading over 1.1 million shares annually.
4. Fees:
Companies must pay an application fee ($5,000 to $25,000) and annual listing fees, alongside other charges for activities like filing and issuing additional shares.
Specific Listing Rules
Set 1: Earnings
Pre-tax earnings of at least $11 million in the past three years or $2.2 million in the last two years.
No net losses in the previous three years.
Set 2: Capitalization + Cash Flow
Aggregate cash flow of at least $27.5 million over three years.
Market cap of at least $550 million in the last year.
Minimum of $110 million in revenues over the past year.
Set 3: Capitalization + Revenue
Market cap of $850 million in the past year or $90 million in revenue.
Set 4: Equity + Assets
Total assets of at least $80 million and shareholder equity of at least $55 million, reducing market cap requirements to $160 million for qualifying companies.
Difference Between the Nasdaq 100 and Nasdaq Composite
The Nasdaq 100 and Nasdaq Composite Index serve different purposes in the financial market. The Nasdaq 100 is a large-cap growth index that includes the 100 largest domestic and international non-financial companies, ranked by market capitalization. In contrast, the Nasdaq Composite encompasses all companies listed on the Nasdaq exchange, totaling approximately 3,700 stocks.
Factors Influencing the Nasdaq 100 Index
The Nasdaq 100 index is highly sensitive to various factors, including global risk sentiment, Federal Reserve monetary policy, significant economic releases from the US and China, and geopolitical events. These elements serve as the primary drivers of the index's movement, with other influences typically stemming from these core factors.
Calculation of the Nasdaq 100 Index
The calculation of the Nasdaq 100 index involves multiplying the closing price of each stock by its weighting and then dividing the total by a specific index denominator. This method produces the figure reported for the index.
Rebalancing of the Nasdaq 100 Index
The Nasdaq 100 index undergoes periodic rebalancing to adjust its weightings according to various events, such as delistings, bankruptcy proceedings (which halt trading activities for affected companies), mergers, and acquisitions. While rebalancing is generally an annual event, the most recent adjustment took place on April 29, 2022, leading to a reduction of Apple’s holdings from 20% to 12% and an increase in Microsoft’s weighting to 5%, effective May 2, 2022.
Who Should Invest in the Nasdaq 100 Index Fund?
Investing in the Nasdaq 100 index fund is ideal for those seeking exposure to the Nasdaq 100 index while minimizing market risk. Instead of directly trading the Nasdaq 100 index asset on a leveraged basis, investors can opt to buy shares in the Nasdaq 100 index fund, similar to acquiring shares of a company.
Register for an Account
Begin by completing the Live Trading Account application form. Once your identity is verified, we will set up your account.
Fund Your Account
Deposit funds into your account using a credit card, E-Wallet, or bank transfer to get started with trading.
Start Trading
You can trade on any device, including PC, Android, iPad, and iPhone, or access the platform via a web browser.
FREQUENTLY ASKED QUESTIONS
The symbol for the Nasdaq 100 is US100.
The Nasdaq 100 was created in 1985.
The index is heavily weighted towards technology stocks, particularly the FAANG stocks: Facebook, Amazon, Apple, Netflix, and Google.
