If we talk about equity markets, the Wall Street in New York is the number one place that will come into our mind. Major stocks indices are listed here in the New York Stock Exchange, which gauges the performances of major benchmarks such as the S&P 500, Dow Jones and the NASDAQ Composite.
NASDAQ, meanwhile, is a benchmark, just like its counterparts, has gone through an exciting journey in the stock market.
Table of Contents
- 1 What is NASDAQ 100?
- 2 History of the NASDAQ 100 Stock Index
- 3 How is the NASDAQ Index Calculated?
- 4 How Companies Get Listed on Nasdaq?
- 5 Factors that move NASDAQ 100
- 6 Why Invest in NASDAQ 100?
- 7 How to Start Trading NASDAQ?
What is NASDAQ 100?
NASDAQ is an abbreviation for the National Association of Securities Dealers Automated Quotation system. NASDAQ is a benchmark and also known as the largest equities exchange in the US specialising in electronics and technologies. It is one of the most followed stock indexes in the world. It shows the international economic health along with the US economic health.
NASDAQ’s evolution into leading technology equity became the game-changer for this index. In 2008, when it merged with the OMX ABO, an exchange operator based in Stockholm, the company boomed into 3800 companies listed in the index, which offer trading in commodities, derivatives, debt and ETFs.
Today, the company is a top provider of services across 50 countries around the world and in over 70 other stock exchanges, focusing in stock trading and exchange technology. It also aids public companies to raise capital by providing tools that can help them develop investor relations, market intelligence and board relationships.
As tech-mania surfaced in late 1990’s, investors steered internet-linked stocks into bullish territory and has maintained six years of bull market for stocks.
NASDAQ is a stock market index which includes the top 100 most liquid, most traded and non-financial companies based on their market capitalisation. The industries that it covers are telecommunication, technology, industrial, healthcare, transportation, retail, and media. But most of the companies that it includes serving in the field of technology that is why NASDAQ 100 is also known as a technology index. Some of the top and renowned companies of NASDAQ 100 are as follows:
• Microsoft Corporation
• Adobe Inc.
• Nvidia Corporation
• Zoom Video Communications
The exchange-traded fund (ETF) PowerShares QQQ Trust (QQQ) keeps an eye on NASDAQ. NASDAQ gives a quick overview of how the largest firms of the nation are doing. It mainly includes tech companies which make it extremely volatile as compared to the other indexes.
History of the NASDAQ 100 Stock Index
NASDAQ 100 came into existence in January 1985. It was the first stock exchange in the US which brought online trading. Its main focus was technology-based companies like oracle and google. At first, it acted as a quotation platform and did not provide access to trading. The biggest contribution of Nasdaq was to lower the spread. Because at that time spread was the most popular way from where brokers used to make a profit.
Since its inception, it has seen many dramatic changes in value. It started at a price of 250, and after that, it is continuously growing. And as of November 2019, it is climbing over 8,000. Nasdaq experienced a profound spike at the time of the dot com boom. At that time the index rose above the 5,000 mark, which was a great spike.
Nasdaq also took a hit at the time of the 2008 financial crisis. But after that incident, it is on a continuous bull run and imitates other indexes such as DAX 30 and S&P 500.
There is another index which includes solely financial companies named as NASDAQ Financial-100. This is the reason why the NASDAQ does not include any financial companies.
Bubbles and Crashes
It was not a smooth road for NASDAQ as it journeys the world of the financial market. Just like other benchmarks, it went through its own ups and downs and highs and lows.
NASDAQ has experienced a major turnaround with its fate. On March 10, 2000, it touched an all-time high of 5 048.62, driven by the tech bubble when investors drove prices of tech and internet stocks beyond reasonable valuations, wiping out billions of dollars of investment and pushing the economy towards a mild recession. This came to be known as the dot-com bubble of 2000.
Meanwhile in May 18, 2012, NASDAQ encountered a major debacle with the Facebook Initial Public Offering when a 30-minute delay occurred during the initial offering of the second largest IPO in the history and traders were not able to place and even can orders, resulting to $500 million loss for investors.
How is the NASDAQ Index Calculated?
NASDAQ Index is measured by market capitalisation. It is calculated by the large-cap technology companies, and the QQQ is weighted heavily towards these companies.
The index value is calculated by the gross value of the index stocks weights of every one of the index securities and multiplied by every security’s previous sale price and divided by an index divisor. Every company’s weightage is restricted to 24%. No company can go beyond this weightage.
There are some standards set by NASDAQ so, to become a part of Nasdaq, companies must follow these standards in order to be the part of the NASDAQ 100 index. It also requires those companies which are exclusively listed on Nasdaq to overview the liquidity and market capitalisation of the company.
Apart from these requirements, Nasdaq urges companies to fulfil some more requirements such as being listed on the market for at least three months, achieving average daily shares volume of 200,000.
How Companies Get Listed on Nasdaq?
The Nasdaq does not allow just any random company to be traded on its exchange. In order to be listed on Nasdaq index, a company should be listed on Nasdaq Global Market or Nasdaq Global Select Market.
The daily volume of stocks of the companies must be 200,000, and the company should submit all the quarterly and annual reports and should be free from bankruptcy proceedings.
At the time of listing, every company should have at least 1,250,000 publicly traded stocks and the shares should be excluded that are held by directors, officers and any other owner and the quantity should not be more than 10% of the total shares of the company.
All the companies that are included in the NASDAQ are reviewed quarterly. And all the restricted stocks are precluded when every company’s market value is calculated. Inclusion and exclusion of companies depend on the market capitalisation.
At the time of listing the minimum bid price should be $4.00. And a minimum of three market makers for the stock is compulsory. Apart from all these conditions, the companies must have a total 2,200 shareholders, at least 450 round lot (of 100 stocks) stockholders or 550total stockholders with an average trading volume of 1.1 million in the past 12 months.
Factors that move NASDAQ 100
There are various variables that play an important role when investing in the NASDAQ 100 index. Before starting trading, you need to know those factors and their possible effect on your Nasdaq index positions. The factors that move Nasdaq 100 are shaped by the stocks’ performance as well as other external factors. Some of them are as follows:
1) Stock performance
Factors like the earning reports of the companies, New product launches, key appointments, etc. all these factors can impact the performance of any stock; hence it affects the price of the index widely. That is why there is a weighting system because the largest companies are more likely to affect the value of the index.
2) Fundamental factors
Fundamental factors such as monetary policy, interest rates, and general economic indicators can affect the value of an index. Apart from this, the economic performance of the company affects the consumer desire for products and company investment levels. Apart from all these fundamental factors here are some more factors that also affect the Nasdaq index.
• Political Changes
• Global Economic Fears
• Global Trade Wars
• Daily Economic Data Releases
• Company-Related Movements
• Globalisation such as punitive tariffs on steel
• Some other asset classes like metals, oil etc.
Why Invest in NASDAQ 100?
• There are more chances of you making higher profits with Nasdaq 100 compared to the S&P 500. According to FundsIndia, from the last 33 years, the Nasdaq index has provided around 15% or higher return in 5 years annualised plans to the investors and about 61% of the time. On the other hand, the S&P 500 have provided only 54% of the time.
• Investors prefer Nasdaq index trading because of its tight spreads, versatility and long hours that it offers.
• NASDAQ 100 is one of the most volatile indexes, which creates sharp ups and downs. SO there are equal chances of making a good profit and losing all that you have.
• One other best way to identify the benefit of Nasdaq is, over a period of time checking its 6-month returns. The range of Nasdaq is always wider than other indexes.
• Nasdaq 100 has an enormous possibility of getting higher long-term returns, but it is also expected to come with immense volatility in the short run.
• The Nasdaq index provides tight spreads, strong liquidity along with long trading hours.
• The price of the Nasdaq index is simulated by a big number of economic factors and industries. So, there are very fewer chances of stock price manipulation.
• Any investor and trader can invest in the Nasdaq through Nasdaq options and futures and exchange-traded funds (ETFs).
How to Start Trading NASDAQ?
The process of trading NASDAQ is quite easy and straightforward. You can start trading Nasdaq in simple four steps.
Step 1: Open a Trading Account
The first thing you would require is a trading account. So find a good online broker and make an account with them. But while choosing a broker, always be aware of fraud. Here we have attached a list of some renowned, good brokers that offer free demo accounts with virtual money so that you can practice trading before jumping in the ground.
• T1 Markets
Step 2: Deposit Money in Your Trading Account
Once you are sure about trading and you are done with your demo account. Now, you have learned some good tips and tricks to the trade. Now you need to fund your account in order to trade for real. One thing to keep in mind while funding your account is always to deposit money based on your risk-taking capacity. So that in case you lose, then you can manage your loss.
Step 3: Buy the NASDAQ Share
Now, you have all that you need to trade. You have the account, fund in the account and also you have learned some tips and tricks to the trade. Now, you need to choose the Nasdaq share, select how many shares you want, and click on purchase.
Step 4: Review Your Position Regularly
Your task doesn’t end here. You need to review your Nasdaq position regularly in order to check how it is doing. Follow your investment strategy on the basis of investment type whether you are holding it for longer or selling it after a short period of time.
Here is a list of top 100 companies with their Ticker which participate in NASDAQ stocks as of November 2020.
|3.||Automatic Data Processing, Inc.||ADP|
|5.||Alphabet Inc. (Class A)||GOOGL|
|6.||Alphabet Inc. (Class C)||GOOG|
|13.||Advanced Micro Devices||AMD|
|16.||Applied Materials, Inc||AMAT|
|21.||BioMarin Pharmaceutical Inc||BMRN|
|24.||Costco Wholesale Corporation||COST|
|28.||Charter Communications, Inc.||CHTR|
|29.||Cognizant Technology Solutions Corporation||CTSH|
|30.||Check Point Software Technologies Ltd.||CHKP|
|34.||Dollar Tree, Inc.||DLTR|
|42.||Fox Corporation (Class A)||FOXA|
|43.||Fox Corporation (Class B)||FOX|
|46.||Gilead Sciences, Inc.||GILD|
|54.||Keurig Dr Pepper Inc.||KDP|
|56.||Kraft Heinz Co||KHC|
|58.||Liberty Global (Class A)||LBTYA|
|59.||Liberty Global (Class C)||LBTYK|
|62.||Micron Technology, Inc.||MU|
|67.||Monster Beverage Corporation||MNST|
|68.||Maxim Integrated Products||MXIM|
|72.||NXP Semiconductors N.V.||NXPI|
|74.||O’Reilly Automotive, Inc.||ORLY|
|81.||Ross Stores, Inc.||ROST|
|87.||Skyworks Solutions, Inc.||SWKS|
|88.||Sirius XM Radio, Inc||SIRI|
|92.||Take-Two Interactive, Inc.||TTWO|
|99.||Walgreen Boots Alliance, Inc.||WBA|
|100.||Zoom Video Communications||ZM|
The Nasdaq 100 index is a tradable financial asset which comprises a great chance for traders. Although, the volatility of the Nasdaq index is a double-edged sword. If you want to become a Nasdaq 100 index trader, then always select a regulated and authorised service provider such as ETFinance, which will provide you with the perfect environment to explore, and flourish. And also do not forget to practice strict money management to improve the chances of your success.