Definition

NASDAQ 100 Index

What is the NASDAQ 100 Index?

The NASDAQ 100 Index, also known as just ‘NDX’, is the collection of the top 100 non-financial enterprises listed on the NASDAQ stock exchange. It comprises the most active entities from industries such as biotechnology, retail, technology, industrials, healthcare, media, etc.

NASDAQ 100 helps current and potential investors compare current price levels with the previous ones to study the overall market performance.

In January 1985, the National Associate of Securities Dealers (NASD) started the NASDAQ 100 Index. Concurrently, NASD also started NASDAQ Financial 100 index, which includes only companies that extend financial services.

In order to be part of the NASDAQ 100 Index, companies are required to fulfil a set of conditions set by the NASDAQ. A company needs be listed on the NASDAQ to begin with, and is also expected to meet average daily volume, market capitalization and liquidity standards.

Some of the well-known brands listed on NASDAQ 100 are Tesla Inc, Microsoft Corporation, Alphabet Inc, etc.

Examples of some of the securities included in the NASDAQ 100 are:

  • Common stock: It is a form of security representing ownership of a corporation. Common stockholders have the privilege to vote on corporate policies and elect the board of directors.
  • Tracking stock: It is a form of security offered by the parent company to track the financial performance of a high growth division or segment. It gives investors exposure to a profitable segment and assists companies in raising capital.
  • American Depositary Receipts (ADRs): It is a negotiable instrument issued by a United States depository bank allowing the investors to purchase stocks of a company overseas. Its dividends are priced in US$.

Real Estate Investment Trusts (REITs) are not part of the Index.

How does the NASDAQ 100 Index work?

The NASDAQ 100 Index is constructed on a modified capitalization-weighted index, which means the stocks are weighted in line with the total market value of their outstanding shares. If the company’s stock price changes, its stock index’s value also changes. When rebalancing, NASDAQ reviews the already included companies and makes adjustments by re-ranking the eligible companies.

How to trade in NASDAQ 100 Index?

The NASDAQ 100 Index is traded via the Invesco QQQ Trust. The Invesco QQQ Trust traces the 100 largest companies’ performance listed on the NASDAQ exchange. Each company part of the Trust must be listed on the broader exchange for at least two years and a member of the NASDAQ 100. In addition, listed stocks must have an average daily trading volume of 0.2 million and publish quarterly and annual reports.   

Companies with extremely high market capitalization are exempted from specific requirements. In addition, companies registered with bankruptcy issues are omitted from the Trust. The objective of the Trust is to track the performance and the price of the underlying index.

Summary
  • The NASDAQ 100 Index is the collection of the top 100 non-financial enterprises listed on the NASDAQ stock exchange.
  • It comprises the most active entities from industries such as biotechnology, retail, technology, industrials, healthcare, media, etc.
  • NASDAQ 100 helps current and potential investors compare current price levels with the previous ones to study the overall market performance.

Frequently Asked Questions (FAQs)

  1. What is the importance of the NASDAQ 100 Index?

The NASDAQ 100 Index plays a critical role in the global and local economy. It guides the investors of top companies in the non-financial sector. It is considered a well-known and well-trusted exchange for companies from the outside financial sector. Getting listing on NASDAQ 100 is expected to affect the financial success of the companies. This Index is also known for the inclusion of the companies that are the front line of innovation in all included industries.

  1. What is the difference between NASDAQ 100 and NASDAQ Composite Index?

The NASDAQ 100 Index includes only the top 100 enterprises from categories other than the financial sector. The NASDAQ Composite Index, on the other hand, holds all the homegrown and global entities listed on the NASDAQ exchange.

The NASDAQ 100 Index does not include stocks of financial, investment and banking companies. Instead, it includes stocks across from industrials, healthcare, consumer goods, consumer services, telecommunications, technology, and utilities. Its maximum allocation is from the technology sector.

On the contrary, NASDAQ Composite Index includes stocks from all significant industries, including the financial sector.

  1. What is the NASDAQ 100 Index’s trading hours?

The trading hours for NASDAQ 100 Index are between 9:30AM EST to 4:00PM EST. However, the price of NASDAQ 100 is calculated in premarket trading hours (4:00AM EST to 9:30AM EST) and post-market trading hours (4:00PM EST to 8:00PM EST).

  1. What are the different trading strategies on NASDAQ 100 Index?

To trade on NASDAQ 100 Index is similar to trade on other instruments. The investors or traders can opt for any of these strategies:

  • Swing trading: It is a strategy used in trading to realize short to medium-term profits. The trader opens the position basis market trends and technical analysis. Technical analysis includes charts or other key instruments. It helps in understanding the behavior of the instrument and predict if it will fall or rise. Under this strategy, the position is opened for a medium period of time.
  • Day trading: This strategy focuses on the positions that are opened and closed on the same day. The trader opens the position at the start of the day and closes at the end with either a profit or loss in hand.
  • Position trading: Under this strategy, the trader purchases the security and holds until a trend peak. The position traders use fundamental analysis, technical analysis, or a combination of both before opening a position. They buy and hold for a longer-term.