How to trade or invest in the NASDAQ 100 index
The NASDAQ 100 is an index which tracks the performance of the 100 largest non-financial companies in the US. In this article, we’ll explain the differences between trading and investing in the NASDAQ 100.
How do you trade or invest in the NASDAQ 100?
There are two ways for you to get exposure to the NASDAQ 100: trading or investing. You can trade on the price of the NASDAQ 100 with spread bets or CFDs, which are financial derivatives that you’ll trade with leverage. For investing, you can get exposure to the NASDAQ 100 through buying into ETFs that track the index’s price, or shares of NASDAQ 100 companies.
Our NASDAQ 100 offering is named the US Tech 100 on our trading platform and website. The table below highlights the main differences between trading and investing.
|Trading the NASDAQ 100||Investing in the NASDAQ 100|
|Ways to trade||Spread betting and CFDs||Buying ETFs or shares|
|Market hours||24/7, except 10pm Friday to 8am Saturday (UK time) and 10.40pm to 11pm Sunday (UK time)||12pm to 10.30pm (10pm on Friday) for All Session US shares. 2.30pm to 9pm Monday to Friday (UK time) as standard|
|Deposit required||5% of trade size||100% of trade size|
|Time frame||Short term||Long term|
|Liquidity||High liquidity when trading with spread bets and CFDs||Lower liquidity when investing in shares and ETFs compared to trading|
Trading the NASDAQ 100
Trading the NASDAQ 100 means that you are speculating on the upward or downward price movements of the index with spread bets or CFDs. You’d go long to speculate on upward movements, and you’d go short to speculate on downward movements.
Spread bets and CFDs are leveraged products, meaning you’ll be able to get much larger market exposure while only having to commit a proportion of the position’s full value upfront – known as margin.1
But remember that while leverage can increase your profits, it can also increase your potential losses. That’s because your total profit or loss on a leveraged trade is determined by the full size of the position, rather than the margin required to open it.
Below, you’ll see a screengrab from our trading platform of the NASDAQ 100’s price performance from June 2019 to June 2020.
Ways to trade the NASDAQ 100
Cash indices enable you to speculate on the spot price (current market price) of the NASDAQ 100. They are popular with short-term traders because they offer tight spreads – starting at just one point when you trade the NASDAQ 100 index with us.
Because overnight funding charges are not included in cash indices spreads, you might want to close your positions at the end of each trading day rather than incur this additional cost.
Index futures enable you to speculate on the futures price of the NASDAQ 100. Trading index futures is popular with long-term traders because the overnight funding charge is included in the spread. While this means the spreads are slightly wider, you won’t incur this additional cost at the end of each trading day.
Our spreads for NASDAQ 100 index futures start at three points, but bear in mind that this also includes the overnight funding charge – so you won’t incur this additional cost on top.
Investing in the NASDAQ 100
The aim of investing is to profit from upward movements in the NASDAQ 100’s price. While you can’t invest directly in the NASDAQ 100, you can invest in ETFs and shares of companies that are included in the NASDAQ 100 index.
If you choose to invest, you’ll need to commit the full value of your position upfront because leverage is not available for investment positions. But, if you invest in US shares with us, you’ll be able to deal without paying any commission thanks to our best commission on US shares.2
Crete a share dealing account
Our best commission on US shares is available to clients who opened three or more positions on their share dealing account in the previous month. The below table compares our share dealing commission to those of our competitors:
|UK best commission||UK standard commission|
Ways to invest in the NASDAQ 100
A NASDAQ 100 exchange traded fund (ETF) will track the price of the NASDAQ 100. ETFs are often made up of a range of different assets such as individual shares of companies that are included in the NASDAQ 100 index – and buying shares in an ETF will give you similar exposure to buying multiple different shares in the NASDAQ 100.
Stocks of individually listed NASDAQ 100 companies are another way to get exposure to the NASDAQ 100 through investing. When you buy a stock, you’ll be taking direct ownership, which means you might be granted voting rights in company decisions, or become eligible to receive dividends.
Popular choices for stocks to invest in to receive exposure to the NASDAQ 100 might be Apple (AAPL), Alphabet (GOOG), Microsoft (MSFT) and other large-cap tech companies. This is because the NASDAQ 100 is a capitalisation-weighted index, so the performance of larger companies will have a greater bearing on the index’s performance.
Economic events that affect the share price of the companies that are included in the NASDAQ 100 index, or that are likely to affect the strength of the US economy, will affect the index’s price. These events should be analysed on an individual basis, because an event that is good for one company could be bad for a different company.
Strength of the US dollar
The strength of the US dollar will affect the NASDAQ 100’s price. For example, US companies with a large proportion of offshore sales will benefit from a weak dollar, because they’ll receive a lot of their sales revenue in foreign currencies – which could be stronger. Against a weak dollar, the foreign currency is able to buy more and the company will experience a boost in sales revenues as a result.
News releases, such as measures to combat the coronavirus, stimulus packages and central bank announcements, will affect the price of the NASDAQ 100 because companies might experience an increase or decrease in their respective share prices – depending on the nature of the news.
Earnings reports of individual companies will affect the performance of the NASDAQ 100. Strong earnings in large companies will often cause an increase, and weak reports in these companies will likely cause a drop.
Value of individual companies’ shares
The NASDAQ 100 is a capitalisation-weighted index, which means that the overall market performance of larger companies like Apple will have a larger impact on the index’s price than smaller companies
NASDAQ 100 trading strategies and tips
- Determine your trading style: examples include scalping, day trading, swing trading and position trading. Some styles, like scalping or day trading, are better suited to the short term, while swing or position trading are better suited to the medium or long term
- Study charts and price action: you can determine current market sentiment with daily and weekly price charts, while price action can help you understand previous market trends
- Use technical analysis and indicators: technical analysis and trading indicators are very useful to include as part of your trading strategy, as they can help to identify certain signals and trends within the market
- Look for trading signals: trading signals make it easy for you to determine whether the current trend is bullish or bearish. You can confirm current trends with momentum indicators such as the stochastic oscillator or relative strength index (RSI)
- Set trading alerts: you’ll be notified once your alerts are triggered, either by email, SMS or push notification – depending on the device and platform you’re using to trade with us
- Follow industry news: company and sector news will affect share prices. Keep an eye on any developing news stories or breaking news events which might cause NASDAQ 100 shares to increase or decrease in value
1 Deposits for leveraged trades are 20%-25% on 99.77% of tier one US shares.
2 IG’s best commission on US shares is available to clients who traded three or more times in the previous month
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.