What are the Nasdaq exchange and Nasdaq 100 index?

What are the Nasdaq exchange and Nasdaq 100 index?


22 Apr 2020

The Nasdaq is a stock exchange that also publishes two widely followed stock indexes. Some of the largest companies in the world, including Apple, Microsoft and Amazon are listed on the exchange.

Both the exchange and the Nasdaq indexes are heavily weighted to technology and growth companies, making it of interest to investors and traders alike.

What is the Nasdaq exchange?

Nasdaq is an American stock exchange headquartered in New York. It was the first electronic exchange in the world and led the move to automated trading.

The exchange is owned by Nasdaq Inc, a publicly listed company. Nasdaq Inc also owns and operate eight European exchanges.
While originally licensed as a stock market, Nasdaq is now a licensed national securities exchange.

Over 3,000 companies are now listed on the Nasdaq exchange. These companies are divided into three tiers for small, mid and large cap stocks.

NASDAQ stands for National Association of Securities Dealers Automated Quotations.

The Nasdaq Indexes

The two widely followed Nasdaq indexes are the Nasdaq Composite and the Nasdaq 100.

The Nasdaq Composite is an index of all common stocks, ADRs and other types of ordinary shares that are listed on the Nasdaq exchange.  

The Nasdaq 100 is a subset of the Nasdaq Composite, consisting of the 100 largest non-financial companies in the Nasdaq Composite index.

The Nasdaq 100 accounts for around 90% of the value of the Nasdaq Composite index.

ETFs, futures and options on both indexes are widely traded. Products tracking the Nasdaq 100 are amongst the most widely traded in the world.

The History of the Nasdaq

The Nasdaq exchange was started in 1971 by the NASD (National Association on Futures Dealers), now known as FINRA. Initially it was set up as an electronic system. When the electronic quotation system became operational it was relatively easy to add a trading system. Thus, the world’s first electronic exchange was born.

By 1981, 37% of stock trades in the US were conducted on the NASDAQ exchange, and by 1991 the percentage had grown to 46%. The exchange really took off in the late 1990s during the “Dot Com’ bubble. It was the first exchange to facilitate online trading and became the preferred exchange for technology companies to list on.

Nasdaq Inc became a listed company in 2002 after FINRA sold its stake in the company. The company now has a market value of $16 billion and annual revenues of $4.2 billion.

 

How are the Nasdaq indexes calculated?

Both Nasdaq indexes are market cap weighted. That means the weight of each stock in the index reflects its value compared to the value of all the companies in the index.

Market cap weighted indexes are calculated by adding up the value of all the companies and then calculating the percentage attributable to each company. The index is based to 100 when it is launched, and then grows in line with the growth of the companies it includes.

Nasdaq indices are rebalanced annually, in December. Any companies no longer eligible are removed from the indexes and replaced by newly eligible companies. Weighting may also be adjusted according to new share issues or repurchases.

What is the Nasdaq 100?

The Nasdaq Composite index, which includes all Nasdaq listed companies, was launched in 1971 when the exchange went live. In 1985, The Nasdaq 100 index was launched, to reflect the values of the most liquid, non-financial companies.

The Nasdaq 100 is one of the three major US Indexes, the other two being the Dow Jones Industrial Average and the S&P500. The Dow contains just 30 stocks, and is prices weighted. The S&P 500 is also a market cap weighted index but includes 500 stocks. These indices also include financial companies like banks and insurers.

The index began with a value of 100 in 1971 and first reached 1,000 in 1995. At the peak of the Dot Com bubble in March 2000, it reached 5046. It then fell 3,938, or 78% over the following 18 months. After bottoming at 1,108, it took another 13 years to reach its previous high again. In July 2019 it reached a new record high of 8,321.

The following 5 companies account for 45% of the Nasdaq 100, and therefore have the most influence on the direction of the index:
Microsoft (MSFT) makes up around 11% of the index and has a market value of about $1 trillion. Besides the company’s well-known software, it is building a rapidly growing cloud business.
Apple (APPL) which accounts for just over 11% of the index is worth just over $1 trillion. Apple sells computers, tablets and smartphones. It also sells subscription services for video, music, apps and other services.
Amazon (AMZN), with a market value of $850 billion makes up 9.5% of the index. Amazon’s profits come from its marketplace, its cloud business (AWS) and advertising.
Alphabet/Google (GOOG) accounts for 8.5% of the index and is worth $820 billion. Google owns numerous businesses including YouTube, Gmail. Android and the Google search engine. Most of Google’s revenue comes from advertising.
Facebook (FB), with a value of $500 billion is 4.7% of the index. Besides the Facebook platform, the company owns WhatsApp and Instagram. It makes its money from advertising on the various platforms.

The largest 20 companies account for just under 70% of the index. Other prominent members of the index include Intel, Cisco, Pepsi, Comcast, Adobe, Starbucks and Netflix.

The Nasdaq 100 includes the largest non-financial companies listed on the Nasdaq. The Nasdaq Financial 100 includes financial companies like Etrade, T Rowe Price and Zillow. The Nasdaq 100 is widely considered a technology focused index, which it is, though this is not by design. There are several companies from other sectors, including Pepsi, Costco, Starbucks and Walgreens.

H2 Trading the Nasdaq 100
An index is merely a calculation based on prices, so you cannot trade an index. However, you can trade ETFs, futures contracts and CFDs that are based on an index.

The largest ETF (exchange traded fund) tracking the Nasdaq 100 is the Invesco PowerShare’s QQQ fund. This fund has $73 billion under management and is listed on the Nasdaq exchange too.

While ETFs are adequate for investors who don’t require leverage, traders and most investors look to CFDs and futures contracts to trade the Nasdaq 100, because they are more liquid and offer other advantages.

What is CFD Trading

Contracts for Difference, or CFDs, are derivative trading instruments. They are similar to futures contracts but are not traded on centralized exchanges like futures. Instead, each CFD is a contract between a broker and a client,

There are several advantages to trading CFDs. They can be traded on any tradable instrument, including stocks, index futures, currencies, commodities and cryptocurrencies.

They allow traders to trade all these instruments from markets around the world, on one trading platform, such as Libertex, and with one trading account. This is a major advantage of CFD trading as it reduces the number of accounts you need to keep track of.

CFDs are traded using margin, which means only a percentage of the value of the trade needs to be deposited to open a position. CFDs can easily be shorted too

Nasdaq CFD Trading

CFDs offer several advantages for traders and investors alike. Libertex offers CFDs on the Nasdaq 100 futures, as well as live charts and prices. The market can be tracked on the Libertex platform, as well as on the very popular MetaTrader 4 platform.

Libertex Nasdaq 100 CFDs offer leverage of 100x and a minimum trade value of just EUR 20.

Advantages and disadvantages of Nasdaq 100 CFDs

As with all trading activities and instruments, there are advantages and drawbacks to consider when trading Nasdaq 100 CFDs.
H3 Pros:
✔ The Nasdaq 100 is more volatile than other indexes, creating more trading opportunities.

✔ Several of the fastest growing companies in the world make up a large percentage of the index. They include Apple, Amazon, Google and Microsoft. This means the index gains more value than other indexes during bull markets.

✔ CFDs on the Nasdaq allow traders to increase their profits by using leverage.

✔ CFDs also allow traders to open short positions, and profit during corrections and bear markets.

✔ CFD trading accommodates smaller trades than futures trading, which has a very high minimum trade size.

Cons

Because of its volatility, the Nasdaq can move a lot overnight and during a single trading session. While this can help you increase your profits, it applies to losses too.

The Nasdaq can be unpredictable during periods of market volatility.

Nasdaq trading hours

The Nasdaq exchange official trading times are 9.30am until 4pm EST. However, there is also a pre-market session from 4am until 9.30am and a post-market session from 4pm until 8pm.

Conclusion

The Nasdaq exchange is home to many of the most successful companies in the world. The Nasdaq 100 offers exposure to the largest 100 of these companies. The index is a good benchmark for long term growth investors. Trading instruments like CFDs based on the index offer traders numerous opportunities to trade this index as it rises and falls.

You can trade CFDs on the index with Libertex . If you want to get started, you can open a risk-free demo account today. This will allow you to get used to the trading platform and learn more about trading the Nasdaq 100, with no risk or cost.

Libertex is a broker and trading platform which offers CFDs stocks commodities, indices, ETFs and cryptocurrencies with leverage of up to 100 times. The platform offers free trading tutorials and state of the art trading tools.

Why should you trade with Libertex?

Founded in 1997, Libertex is an international, trusted brand with more than 20 years of experience in financial markets and online trading, serving clients in more than 110 countries. Every year, the company consolidates its leading position both in the markets where it is already present and in new markets that it enters with its innovative products and services.
✔ Licensed and regulated CFD broker
✔ 2.2 million clients worldwide
✔ 213 tradable assets
✔ 27 countries covered
✔ 30 international awards
Advantages of trading CFDs with Libertex
✔ Easy-to-use and convenient high-speed platforms
✔ Leverage of up to 1:30 for retail clients and up to 1:600 for professional clients
✔ 50% discount on commissions for new traders
✔ Zero spread

 

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