The Ultimate Guide to
The NASDAQ-100
The Nasdaq is an American stock market owned and operated by Nasdaq Inc. It is the second largest in the world by market capitalisation, after the New York Stock Exchange. The Nasdaq-100 (NDX) is a modified capitalisation-weighted index composed of 100 of the largest equity securities listed on the Nasdaq. It includes companies from a wide spectrum of nonfinancial industries, such as Technology, Health Care, and Retail. The Nasdaq-100 is the premier large-cap growth index and provides the basis for benchmarking numerous investment products. Around 50 Billion ETPs (Exchanged Traded Products) were benchmarked to the Nasdaq-100, according to a study by the Nasdaq research team in 2015.
Nasdaq-100 was launched on January 31st, 1985, presenting itself as an alternative to the NYSE indices. It created two separate indices: the Nasdaq-100, which consists of stocks from Industry, Retail, Technology, Telecommunication, Healthcare, Biotechnology, Transportation, Media & Services; and the Nasdaq Financial-100, which consists of insurance firms, banking companies, brokerage, and mortgage companies. Nasdaq expected these to be used as benchmark indices by market participants, anticipating a healthy derivatives market to develop around them. The index was rebalanced to a modified market cap index on December 21st, 1998, followed by special rebalance effective from May 2nd, 2011.
Composition
The index comprises 100 of the largest non-financial organisations, based on market capitalisation, that are listed on the Nasdaq stock market. The past three decades have seen Nasdaq-100 evolve from being the market’s technological index to a leading indicator of strong growth potential companies, who are leading industry-wide innovation. Companies included in the Nasdaq-100 have driven economic growth in the recent years and they represent a shift in the business world in the 21st century. By the end of 2014, 448 stocks had been a member of the Nasdaq-100 since its inception. In recent years, somewhere between 7 to 15 stocks have been added or removed each year. The top ten companies who have held the highest weights in the index during the recent years are Apple, Microsoft, Amazon, Google, Facebook, Gilead Sciences, Intel, Cisco & Comcast. The main sectors included in Nasdaq 100 as at the 30th June 2019 were: Technology – 53.48 %; Consumer Services – 24.63%; Health Care – 11.10%; Consumer Goods – 5.49%; Industrials – 4.33%; and Telecom – 0.97%.
The top ten securities by weight as at 1st May 2019 were as follows:
| TICKER |
SECURITY |
WEIGHT |
| AAPL |
APPLE INC. |
10.70% |
| MSFT |
MICROSOFT CORP |
10.57% |
| AMZN |
AMAZON.COM INC |
10.12% |
| FB |
FACEBOOK INC |
5.01% |
| GOOG |
ALPHABET CL C CAP |
3.89% |
| GOOGL |
ALPHABET CL A CMN |
4.43% |
| CMCSA |
COMCAST CORP A |
2.34% |
| INTC |
INTEL CORP |
2.73% |
| CSCO |
CISCO SYSTEMS INC |
2.93% |
| NFLX |
Netflex |
1.98% |
Source: Nasdaq-100 Index Factsheet – 1st May 2019
Eligibility for Nasdaq-100 Inclusion
The eligibility criteria for any stock to be included in Nasdaq-100 are as follows:
- Listing – The primary listing in the US must be exclusive to the Nasdaq Global market or the Nasdaq Global Select Market. Securities that were dually listed on other US Markets prior to Jan 1st, 2014 and have continuously maintained such a listing, are the exception to the rule.
- Security Types – Security types eligible for listing include common stocks, ADRs and tracking stocks. Close-ended funds, convertible debentures, ETFs, LLCs, limited partnership interests, preferred stocks, rights, warrants and derivative securities are not eligible to be included in the index.
- Market Capitalisation – There are no qualifying criteria for market capitalisation as such, inclusion is only determined based on the top 100 largest companies in the eligible industries by market capitalisation.
- Liquidity – A minimum of 3 months Average Daily Trading Volume (ADTV) of 200,000 shares.
- Security Seasoning Criteria – The security must have ‘seasoned’ in either the Nasdaq, the NYSE or the NYSE Amex for at least 3 months, excluding the month of the initial listing
How the Value of Nasdaq-100 is Derived
The Nasdaq-100 is a modified market capitalisation-weighted index, which means that its value is derived from the aggregate value of index share weights of each index security, multiplied by the last trading price of the security, which is then divided by the divisor of the index. The divisor serves the purpose of scaling down the obtained aggregate value, which is more desirable for the practical use of the index.
The base value of the index was set at 250, and reset to 125 when it closed at 800 on December 31st, 1993.
The index value is calculated on each trading day, based on the Last Traded Price, once per second for the whole trading window of the day.
How to Trade the Nasdaq-100
The index can be traded through financial institutions such as brokers and serves as an underlying asset for a variety of products. These include exchange-traded funds (ETFs) and derivative instruments such as futures, options, and contracts for difference (CFDs).
ETFs are funds whose value reflect the value of an index as they are composed of shares that are present in the index itself. The ETFs attempt to track the index as closely as possible. ETFs can be traded on the exchange and can be bought as individual stock, allowing traders to follow the index with just one holding.
Another way of speculating on the movement of the indices without owning the shares is through CFDs. As CFDs allow users to speculate on the value of the index, traders can go for long contracts when they believe the index will move up and the price will therefore increase; or go short on the CFD when they believe the index is going down and prices will therefore decline. CFDs are usually highly leveraged products, which means that traders can have a large holding for a relatively small margin. Margin refers to the proportion of the trade that is required to be put down as deposit.
CFD products are highly popular for the Nasdaq-100 index.
Benefits of CFD Trading on Nasdaq-100
- Enables access to one of the most popular and growth oriented indices in the market without the requirement of actually owning shares in the underlying companies.
- Maximises the potential of the portfolio by using leverage – although it must be noted that this can also go against the trader when markets move in the opposite direction to which they have speculated.
- Allows traders to take a speculative stance on the overall market movement, whether they believe it will move up, or down.
- Cuts down the cost of a portfolio of companies by trading on the index.
- Availability of a large pool of regulated brokers who provide a platform to trade on NSD-100 CFDs, making it convenient for traders.
However, it is necessary to keep in mind that CFDs are highly leveraged products and pose a considerable risk of loss of capital. Only experienced traders with the right risk appetite should venture into trading in these instruments.
Authorised and regulated online CFD broker Plus500 offers a US-TECH 100 (NQ) CFD which is based on the E-mini Nasdaq 100 futures, itself based on the underlying Nasdaq 100 Index. Trades in the instruments are offered at a spread of 1.7, with a minimum contract size of 1, and an initial margin requirement of 0.33. The intuitive platform calculates the minimum trade sizes and margins required to place a trade automatically. The manual calculation is as follows: CFD Margin = V (lots) × Contract × Market Price × Margin Rate, %.
Current Value of Nasdaq-100 Index
Source: Google Finance
Conclusion
Nasdaq-100 is one of the most comprehensive market indices that captures the overall movement of 100 market mover stocks. The index is well diversified in sectoral allocation and has beaten multiple other indices in its returns. The index serves as the benchmark and underlying value for numerous other instruments such as ETFs and multiple derivative products such as CFDs. CFDs for the Nasdaq-100 are readily available and offered by many regulated brokers, such as Plus500 and AvaTrade. The trading platforms offered by these brokers are user-friendly and compatible on hand held devices as well as desk top computers.
