What is NAS100 (NASDAQ 100)?
What is the NAS100, NASDAQ 100 or NDX100 which is a US-focused equity index made up of the 100 largest non-financial stocks by market capitalization listed on the NASDAQ stock exchange?
The index is also known as the US Tech 100 due to the prevalence of tech stocks in the index – NASDAQ Financial stocks are included in a separate index, the NASDAQ Financial 100.
NAS100 is not to be confused with the NASDAQ Composite, an index composed of each and every stock listed on the NASDAQ exchange.
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History of the NASDAQ exchange
The NASDAQ exchange is the second-largest stock exchange in the world behind the New York Stock Exchange (NYSE).
The exchange was founded more than 50 years ago and its name derives from the founding body, the National Association of Securities Dealers (NASD).
The NASD divested of its remaining interests in the NASDAQ exchange in 2006, with the exchange then becoming a publicly-traded company.
The NASD changed its name the following year, becoming the self-regulatory body FINRA (Financial Industry Regulatory Authority), whilst the exchange held on to the NASDAQ name long ingrained in the minds of the public.
Originally just a quotation system with no execution functionality, the NASDAQ exchange was the world’s first electronic stock market and the first online stock market, a logical home for the world’s greatest tech stocks.
Launch of the NAS100
The NASDAQ-100 index was launched in 1985 alongside the NASDAQ Financial Index. NASDAQ exchange was looking to compete with the much larger and older NYSE and Standard & Poor’s S&P500 index and these new products were the first step on that journey, allowing for the creation of a suite of futures and derivatives markets, further fuelling the exchange and index growth.
With rapid advances in technology over the coming decades and an associated explosion of tech stocks through the dot com bubble and beyond, the index has gone from strength to strength, returning a compound annual growth rate of 13.6% per year since inception without even factoring in dividends.
The NAS100 is composed of 102 securities issued by the 100 largest non-financial stocks from the NASDAQ exchange. Pluck a big tech name out of the air and chances are it’s a part of the index – Activision Blizzard, Alphabet (Google), AMD, Amazon – and that’s just the A’s. As well as these tech behemoths, there is also a range of other companies covering Industrials right through to Transport and Media.
The index is re-ranked and rebalanced every year in an annual review process, though companies can also drop out at any time if their weight drops below 0.1%, with the largest not-yet-indexed company taking the dropped stock’s place.
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How to trade the NASDAQ 100
As stock markets generally trend up over time and for prolonged periods of time, the go-to trading strategy for stocks and indices is trend-following.
A trend-following strategy seeks to capitalise on sustained momentum and long term trends in markets, going with the crowd rather than betting against it.
Trend-following strategies have a distinct advantage over passive buy-and-hold investing as they will not leave you holding bags of unwanted stocks when the market does eventually turn bearish.
If you are just starting out trading the NAS100, a buy-side only trend-following strategy is the most simple approach.
Once you have perfected this, you may want to explore participating in downwards trends too by incorporating shorting into your strategy – alternatively you can leave this side out and just take a vacation during NDX100 bear markets.
Moving averages, Bollinger bands and Keltner channels are just some of the indicators you may want to research and incorporate into your NAS100 trend-following strategy, as trend-following is a long term approach, the daily chart is likely a good place to start on your search for an edge.
One of the biggest advantages of a daily trend-following strategy is the small amount of time required to execute, you can trade such a strategy in just 5 minutes per day as you will only ever be trading at the start of a new trading day. This makes this type of strategy the perfect solution for traders with competing work, family or education commitments.
Where can I trade the NAS100 from South Africa?
As the NASDAQ is the second-largest stock exchange in the world and the NAS100 one of the most actively traded indices, opportunities to trade the market abound, though trading the market directly from South Africa may be difficult if you aren’t already set up with a US equities brokerage.
Contracts for difference are a highly accessible derivative product based on a range of indices and other markets including the NAS100.
These products allow savvy traders and investors to speculate on moves in underlying markets without having to physically purchase the stock or index, as such, fees are generally highly competitive.
Another advantage of CFD trading is readily available leverage, leverage allows you to trade much larger sizes than you would be able to trade in the cash market, supercharging your potential returns and losses.
With a CFD broker, you should be able to begin trading the NAS100 with a very small amount of capital, putting your new trend-following strategy to the test in live market conditions, whilst limiting your risk through this learning process.
Once your strategy has proven itself and you are well aware of the downside risks, you will then be able to scale up your NAS100 trading on-demand with the power of leverage.
If you’d like to start out trading NAS100 trends, a reliable and trusted South African CFD broker like Blackstone Futures is the logical place to start.
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Heinrich is a Forex and CFD enthusiast with a passion for writing good informative quality content. He strives to showcase the best Forex Brokers in South Africa. Join him on his Journey!
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