Nasdaq 100 trading guide: How to trade the Nasdaq 100 index

• What is the Nasdaq 100?
• Nasdaq 100 constituents
• How to trade the Nasdaq 100
• Nasdaq opening hours
• How is the Nasdaq calculated?
• What moves the Nasdaq's price?
• Average returns of the Nasdaq
• Nasdaq 100 companies list
• Nasdaq FAQs

What is the Nasdaq 100?

The Nasdaq 100 is a stock index that tracks the performance of 100 of the largest US companies listed on the Nasdaq exchange, excluding financial institutions. It launched in 1985 with a value set at 250.

The Nasdaq is one of three benchmark US indices, alongside the S&P 500 and the Dow Jones.

The Nasdaq exchange is home to several indices. As well as the Nasdaq 100, you may often see the Nasdaq Composite index quoted, which includes almost all companies listed on the exchange. The Nasdaq Finanical-100, meanwhile, includes financial institutions alongside other companies.

Nasdaq 100 constituents?

The Nasdaq 100 is home to some of the largest tech companies on the planet, including:

• Apple
• Microsoft
• Alphabet
• Amazon
• Facebook
• Paypal
• Adobe
• Peloton
• Tesla

Constituents are chosen for inclusion according to strict criteria. They need to have been listed on the Nasdaq exchange for a minimum of two years, have an average daily volume of at least 200,000 shares, submit timely quarterly and annual reports, not being in bankruptcy proceedings and more.

Here’s how the Nasdaq 100 company composition looked as of June 10, 2021.

Take a look at every company listed on the Nasdaq in 2021.

How often do Nasdaq companies change?

The Nasdaq 100 is rebalanced annually each December. At this point, the top 75 companies by market capitalisation are selected for inclusion, followed by the inclusion of other companies that were already members and are ranked within the top 100.

If, following this, fewer than 100 companies pass the criteria, companies in the wider index ranked in positions 101-125 that were ranked in the top 100 at the previous reconstitution are considered, followed by companies ranked in the top 100 that were not already members as of the reconstitution date.

How to trade the Nasdaq 100?

You can’t trade the Nasdaq 100 directly, as there’s no asset to trade. It’s only a number that tracks the performance of a group of shares, like any stock index. However, there are lots of derivatives and funds that will allow you to take your position on where it’s headed next.

Let’s run through how you can trade the Nasdaq using CFDs, futures and ETFs.

Nasdaq CFDs

A Nasdaq CFD is an instrument that always tracks the live price of the Nasdaq 100. You buy CFDs to take a long position, or sell them to go short.

To close your position, you trade in the opposite direction.

Learn more about CFDs.

Nasdaq futures

With a Nasdaq future, you’re setting a price today to trade the Nasdaq on an upcoming set date.

If the Nasdaq is above that price as the future expires, you make the difference as profit.

With City Index, you can trade on the futures prices of indices. Find out more.

Nasdaq stocks and ETFs

Instead of using a derivative, you could trade Nasdaq stocks. To get exposure to the whole index, though, you need to buy 100 stocks at once.

Or, you could buy an ETF. These are funds that contain all the stocks on an index.

Learn more about shares and ETFs.

Nasdaq opening hours?

Like other US indices, the standard trading hours of the Nasdaq 100 follow the main US stock exchanges: 00:30 to 07:00 (AEST)Tuesday to Saturday 

Premarket trading can open at 19:00 AEST, and post-market trading can run through to 11:00 AEST.

With a City Index account, Australian clients can trade the index 24-hours a day Tuesday to Saturday.

Learn more about stock market hours.

How is the Nasdaq 100 calculated?

The Nasdaq 100 is calculated based on the market capitalisation of its participants, in what is referred to as a modified capitalisation-weighted model.

The value of the index is determined using the aggregate index share weight value of each of the constituents, multiplied by last closing price of each constituent and divided by an index divisor. Each company has a maximum weighting of 24%.

Find out more about how indices work here.

What moves the Nasdaqs price?

Anything that impacts the companies listed on the Nasdaq is likely to have an effect on its price. If a booming global economy sees businesses thrive, the Nasdaq will probably rise too. Rising regulation and slowing growth, on the other hand, will often see the Nasdaq fall.

It’s worth noting that the Nasdaq can sometimes react to news or events in surprising ways. With so many companies involved, a factor that looks like it should benefit the index could in fact send it downwards.

With that in mind, here are three things to watch out for when trading the Nasdaq:

1. Monetary and economic releases

The US Federal Reserve probably has the single greatest say over whether the US stock market is going to go up or down. Chiefly, because it sets monetary policy: including interest rates.

Low interest rates encourage borrowing, spending and investing in stocks. These are the conditions in which shares often thrive. Companies can borrow cheaply and grow, while customers are more likely to buy products. High rates, on the other hand, do the opposite – putting a brake on the economy, with a negative effect on businesses.

Because of this, index traders are constantly watching for any sign that the Fed might be about to change rates. As well as the Fed’s meetings themselves, they’ll analyse economic releases such as inflation reports and non-farm payrolls so they can try and predict what the Fed will do next.

2. Tech sector performance

Take another look at the Nasdaq company breakdown above. Notice that the companies making up most of the index’s weighting are in the tech sector?

This gives the Nasdaq a strong exposure to the ups and downs of tech companies. The FAAMG stocks alone, for instance, make up some 40% of the index’s price movements on any given day. Where big US tech firms lead, the Nasdaq usually follows.

The lockdowns of 2020 and 2021, for example, saw the Nasdaq’s value soar – partially because tech firms did so well out of the stay-at-home economy.

3. Global events

We’ve seen how global events can boost the Nasdaq. But often, geopolitical risk can see the index hit some of its biggest bear markets. Before the highs of late 2020, it shed around 40% of its value due to growing fears surround COVID-19.

The 2008 crash, too, saw the Nasdaq drop to multi-year lows. Take a look at a long-term Nasdaq chart, and the significant dips you see breaking up the bull runs are probably due to global events.

Average returns of the Nasdaq?

Over the last ten years, the Nasdaq 100 has produced an average annual return of 18.2%. Essentially that means that you’d have earned an 18.2% return on average each year if you’d invested in the index directly.

That compares favourably to other indices: the Dow Jones has an average return of 10.7% for the same period, while the DAX’s is 8.2%. Remember, though, that past returns are no guarantee of future performance.

Nasdaq 100 companies list

The below chart shows the top 20 companies in the Nasdaq 100, correct as of June 14 2021. At the point captured, the top ten alone made up over 65% of the weighting for the entire index, illustrating the influence these companies can have on the whole benchmark.