What is the Nasdaq and how do you trade it?
The stock market is full of various indices. The Nasdaq is just one of them. But why is it so popular among traders? What makes it so special? Let’s find out.
What is the Nasdaq?
There is the Nasdaq Composite Index and the Nasdaq 100. Do not be Wrong. The Nasdaq Composite consists of all domestic and international Nasdaq stocks listed on the Nasdaq Stock Market. Meanwhile, the Nasdaq 100 is a collection of the Nasdaq Composite, which consists of the top 100 non-financial companies. In addition, the Nasdaq 100 is also known as the US100. In the chart below, you can see the Nasdaq 100.
The main difference between the Nasdaq 100 and other indexes such as the S&P 500 and the Dow Jones is that it is made up mostly of technology sector stocks (47.25%). That’s why investors call it the benchmark for US tech stocks or tech indexes. The rest is consumer services (19.37%), health (10.13%), and consumer goods (7.82%).
Technological leaps in the midst of Covid-19
The coronavirus sent technology stocks soaring as demand for e-commerce, cloud technology and streaming services increased dramatically during the long lockdown. Digitization began long before the pandemic, but the coronavirus has accelerated the process. As a result, the Nasdaq soared to unimaginable peak levels! The index has managed to gain nearly 60% since January 2020.
How is the Nasdaq calculated?
The NASDAQ index is calculated based on the company’s market capitalization value. That is, the index value is equal to the aggregate stock value, otherwise known as the index proportion, of each security multiplied by its last selling price and broken down by the index divisor.
Why is that important? This calculation limits the influence of the top companies and balances all the companies in the index. No Nasdaq-100 company can own more than 24%. However, the stock movement of large companies has a more significant influence on the index than the shares of small companies.
What companies are on the Nasdaq?
Altogether, there are 102 symbols because some companies have two classes of stock. For example, Google’s parent company, Alphabet, has Class A (GOOGL) and Class C (GOOG) shares in the index.
Here is a list of the top stocks on the Nasdaq index, you can find famous companies from Apple to Tesla.
How to trade the NASDAQ?
First you have to open the right contract. Don’t get confused, in MetaTrader, you will find two instruments: Nasdaq and Nasdaq-*current year and letter*. The first instrument is only for analysis, not for trading. The second instrument is used for trading. The best thing about trading contracts is that you can trade in both directions, just like trading currencies. In other words, you can take advantage of the price movement by buying or selling.
So to open a contract, click on the “Create a new chart” button in the top left corner, then click on the button shown below.
After that, you get a chart of the contract, which will expire at a certain time. To find out the expiration date, view the contract specifications by right-clicking on the Nasdaq contract as shown below. Then, you will find the last trading time. If you don’t want to bother with expiration dates, US100 is for you.
In the FBS Trader app, the process is even easier. You can simply click the “Index” button and find the required contract in the dropdown list.
Now you know what the Nasdaq is and how to trade it! Get the latest information on earnings reports, company news, and product launches. In fact, technology builds the future. The Nasdaq is a technology index and has great potential to always reach new peaks. In addition, compared to common stocks, index trading can minimize the risk of unexpected price movements due to sudden news releases from one company.