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. With IG, you can trade on the price of the NASDAQ 100 with 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||CFDs||Buying ETFs or shares|
|Market hours||24 hours1||-|
|Deposit required||5% of trade size||100% of trade size|
|Time frame||Short term||Long term|
|Liquidity||High liquidity when trading with 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 CFDs. You’d go long to speculate on upward movements, and you’d go short to speculate on downward movements.
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.2
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.
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 Where indicated, indices are available for dealing 24 hours a day, between 23.02 Sunday and 22.15 Friday (London time) each week. This will be between 07.02 Monday and 06.15 Saturday (Singapore time) on non-Daylight Savings periods and between 06.02 Monday and 05.15 Saturday (Singapore time) during Daylight Saving periods. Other indices are offered only when the underlying market is open. Please ask dealers for information about public holidays.
2 Deposits for leveraged trades are 20%-25% on 99.77% of tier one US shares.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.