Nasdaq 100 trading guide: constituents, market hours and how to trade

The Nasdaq 100 is a major benchmark for stock market performance in the US, but its price is followed around the world. Discover more about what moves the Nasdaq 100 price, the nature of its constituents, and how you can go about trading it.

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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 wider Nasdaq exchange, excluding financial institutions. As such, it is a key gauge of market strength and a major equity benchmark with global consultation.

Launched in 1985 with a value set at 250, the Nasdaq 100 is a market capitalisation weighted index, meaning that, like the German Dax or the FTSE 100, the most capitalised companies in the index are given a greater weighting.

The constituents are chosen for inclusion according to strict criteria, including needing to have listed on the wider exchange for a minimum of two years, having an average daily volume of at least 200,000 shares, submitting timely quarterly and annual reports, and not being in bankruptcy proceedings.

About Nasdaq 100 constituents

The largest constituents of the index by weighting feature the likes of tech giants Apple, Microsoft and Alphabet, as well as global e-commerce player Amazon and electric car luminary Tesla. Also among the higher-profile businesses featured in the index are Facebook, PayPal and Adobe. A more recent addition to the index is vehicle technology company Peloton, which was listed in December 2020.   

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

Nasdaq 100 companies

How often do Nasdaq 100 companies change?

The Nasdaq 100 is changed annually, with a December reconstitution timed with the quadruple witch expiration Friday of the quarter. At this point, the top 75-ranked companies by market capitalisation are selected for inclusion, followed by the inclusion of other companies that were already members as of the reconstitution date 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 is the Nasdaq 100 calculated?

The Nasdaq 100 is calculated based on the market capitalisation of its participants, and is tracked by the exchange-traded fund PowerShares QQQ Trust (QQQ). 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. A 24% weighting is the maximum a constituent can have.

What does the Nasdaq 100 price mean?

The price of the Nasdaq 100 indicates whether the share prices of the companies on the index are rising or falling. If the price of the Nasdaq 100 is increasing, it means that a specific company or group of companies are experiencing gains, which is reflected in the price of the overall index. Conversely, if the Nasdaq 100 price is falling, it means that companies on the index are experiencing a decline in price.

The Nasdaq 100 ranking is based on a weighted average of share prices. This means companies with a larger weighting will often see their share price fluctuations have a correspondingly outsized impact on the wider index.

What affects the Nasdaq 100 price?

The Nasdaq 100 price is affected by a range of fundamental drivers associated with the performance of the US economy and industries within it, as well as technical factors. Federal Reserve monetary policy can have an affect on price, as well as foreign exchange rates, economic data releases, and even commodity prices.

While such drivers may be expected to move the index in a certain direction, there is no guarantee that the move will play out, so traders should consider how determining factors work together rather than simply isolate any one factor. That said, here are a few of the key things to consider when trading the Nasdaq 100.

Monetary policy and economic releases

Federal Reserve monetary policy can vary between periods of being accommodative and being tighter. Accommodative policy often equates to falling interest rates and an increase in the general money supply. Along with these circumstances come credit opportunities, making corporate debt more attractive to obtain and cheaper to service. Thus, in accommodative times, the opportunities for business growth through cheaper debt increase, a scenario that often buoys stock prices in turn.

Conversely, tighter policy means raising interest rates, making debt less attractive and potentially hindering business growth and dampening stock prices. 

Additionally, economic data releases such as CPI, which is linked to inflation, can have a large influence on trading decisions. Inflation can erode profit margins across sectors and also is seen as a potential forebear of longer-term higher interest rates, meaning increasing inflation may cause a drop in indices such as the Nasdaq 100. For example, in the first half of May 2021 the Nasdaq 100 fell from 14,000 to below 13,000 as inflation fears prevailed amid commodity price spikes.

Individual company performance

As mentioned, companies that are weighted the highest in the index are more capable of moving the index than smaller constituents. For example, Apple is considerably more capable of causing changes in the Nasdaq 100 price than Costco.

Socio-political events

Events such as the Great Recession and the coronavirus pandemic are all capable of hitting market demand in one way or another. For example, the pandemic in 2020 caused a sharp deterioration in manufacturing activity and market demand, seeing the Nasdaq 100 plummet 40% in March 2020 from its high of around 9,750 in February that year.

Average annual returns of the Nasdaq 100

Over the last ten years, the Nasdaq 100 has produced an average annual return of 18.2%. The Nasdaq 100 average returns are essentially what managed funds will have earned in profit for investors over the course of a year.

You can see the yearly returns from 2011-2020 below. Remember, past returns are no guarantee of future performance.

Nasdaq 100 returns

Nasdaq 100 market hours

The Nasdaq 100 is open from 9:30 am to 4 pm Eastern time on weekdays. However there is also pre-market trading which can extend as early as 4 am and go through the market open at 9:30am. Additionally, after-hours sessions may span from 4 to 8pm.

Read more on stock market hours.

How to trade the Nasdaq 100

There are a number of ways that you can trade the Nasdaq 100; the most common are derivatives such as CFDs, futures and options, as well as ETFs. All of these instruments enable you to get exposure to all 50 companies from a single position.

Nasdaq 100 CFDs

Contracts for difference (CFDs) are derivatives that take their price from the underlying market, in this case the Nasdaq 100. As you’ll never be taking ownership of an asset, you can speculate on whether the index is going to rise or fall in value.

Learn more about CFDs.

Nasdaq 100 futures

Futures contracts are agreements to exchange an asset at a set price on a set expiry date. Unlike most futures, Nasdaq 100 contracts don’t have an underlying physical asset to exchange, as an index is nothing more than a number representing a group of stocks.

Nasdaq 100 options

Nasdaq 100 options are contracts that give you the right, but not the obligation, to buy or sell the index at a set price on a set date.

When you trade Nasdaq 100 options with us, you’d be doing so via CFDs. Learn more about options trading with us.

Nasdaq 100 stocks and ETFs

You can also trade the Nasdaq 100 through ETFs, or investment instruments that hold a group of stocks – in this case, the shares of constituents on the index. City Index, for example, offers the Betashares Nasdaq 100 ETF, which tracks the results of a basket of equities included in the Nasdaq 100.

Alternatively, stocks on the Nasdaq 100 can naturally be traded individually, offering an opportunity to focus on particular sectors of interest.

Find out more about share trading with us.

How to short the Nasdaq 100

Shorting the Nasdaq 100 involves taking a position that the index will fall. This can be done by selling short a Nasdaq 100 contract or shorting constituent stocks. Alternatively, traders may be interested in shorting a Nasdaq 100 ETF. For options, you can buy Put options on Nasdaq 100 stocks if you believe them to be overvalued, or buy a Put option on a Nasdaq 100 ETF.

Read more about shorting a market.

Can you invest in the Nasdaq 100 in the UK?

You can invest in the Nasdaq 100 in the UK, albeit indirectly, through a combination of ETF, mutual funds or index funds, or of course trade the security through derivatives in the methods outlined above.

Nasdaq 100 companies ranked by market capitalisation

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 % of the weighting for the entire index, illustrating the influence these companies can have on the whole benchmark.

Rank

Ticker

Company name

Weighting

1

AAPL

Apple

10.8%

2

MSFT

Microsoft

9.7%

3

AMZN

Amazon

8.4%

4

GOOG

Alphabet (Class C shares)

4.1%

5

FB

Facebook

4%

6

GOOGL

Alphabet (Class A shares)

3.7%

7

TSLA

Tesla

3.6%

8

NVDA

NVIDIA Corp

3.3%

9

PYPL

PayPal

1.3%

10

CMCSA

Comcast

2.4%

11

ADBE

Adobe

1.9%

12

INTC

Intel

1.8%

13

CSCO

Cisco

1.8%

14

NFLX

Netflix

1.7%

15

PEP

PepsiCo

1.6%

16

AVGO

Broadcom

1.5%

17

TMUS

T-Mobile US

1.4%

18

TXN

Texas Instruments

1.3%

19

COST

Costco

1.3%

20

QCOM

QUALCOMM

1.2%


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