Like any stock index, the value of the NASDAQ 100 is influenced by a number of factors, understanding which can improve your chances of trading success:
Company performance – The efficiency of the company listed on the NASDAQ 100 affects the share price, which affects the weight of the share and the index in general.
If a company’s financial results are good or if the company has good prospects (such as the prospect of M&A activity), its stock price will rise, boosting the NASDAQ 100 index in kind. If the results are poor or the company is hit by negative events, the index will go down.
It is important to note that movements in the index occur on a macro level – the performance of an individual company will not have too significant an impact, given the weighting used within the index.
Historical precedence – As a general rule, the NASDAQ 100 has performed strongly relative to other indices over the past two decades. Negative results were recorded only in 2000-2003, 2008 and 2013. Past performance is no guarantee of future results.
Socio-Political Events – From wars on terrorism to pandemics and geopolitical tensions, world events of a social and political nature can affect the value of companies listed on the NASDAQ 100. This is because if a company is in a crisis situation , is unable to run his own business.
Indeed, if a company’s operations are adversely affected, it is likely to affect its financial performance and prospects, reducing its value in the eyes of NASDAQ 100 traders.
Prevailing Economic Trends – Economic trends such as rising inflation, rising interest rates, economic relief packages, and recessions can affect the fortunes and future prospects of trading the NASDAQ 100, influencing trader sentiment and encouraging bearish or bullish trading behavior.
Other financial stocks, such as the foreign exchange (forex) market, can also have an effect: a bad dollar exchange rate can negatively impact the finances of companies listed on the NASDAQ 100, reducing the index values in kind.
Thematic Trends – Other long-term trends, such as the development of certain technologies, policy realignment, and phenomena such as climate change, can affect the NASDAQ 100 over the long term, which thematic investors are well aware of.
Is the NASDAQ 100 a good investment? What are the benefits?
The NASDAQ 100 is generally considered a good investment due to several factors:
The past performance
As mentioned, over 20 years the NASDAQ 100 only underperformed in 2000-2003, 2008 and 2013 and consistently outperformed the S&P 500. Past performance, however, is no guarantee of future performance.
Technology weighting
Tech stocks are booming, and while the market has been hurt by bearish activity in 2022, the fundamentals of NASDAQ 100 companies like Amazon, Apple and Alphabet are solid. Indeed, many of the companies that make up the index have strong cash flows and a dominant share in their specific markets, which makes these companies – and the NASDAQ 100 – good investment choices.
Great diversification
Despite its focus on technology stocks, the NASDAQ 100 is home to 100 of the largest and fastest growing US companies in sectors as diverse as healthcare, industrials, and consumer staples. This means that NASDAQ 100 traders are relatively well protected from shocks affecting individual companies or sectors.
High volumes
NASDAQ 100 daily trading volumes average over 5billion [according to Yahoo Finance data as of August 2022] (https://finance.yahoo.com/quote/%5ENDX/). This is beneficial as it makes the index more resilient to extreme daily price swings, spreads on instruments such as CFDs are typically lower.
High volatility
While extreme moment-to-moment swings are less likely due to high volume, the NASDAQ 100 has higher overall volatility than other large indices such as the Dow Jones. This can mean higher returns per trade, making the NASDAQ 100 a good investment.
Availability of leveraged products: CFD
In CFD trading, you take a short (sell) position if you think prices will go down or a long (buy) position if you think prices will go up. Trading CFDs on margin allows you to trade large quantities with a relatively small capital investment.
Leveraged products, such as CFDs, are available for traders who wish to trade the NASDAQ 100. These products allow traders to increase their exposure to the market with a smaller investment, by taking positions without the need to own assets.
What are the main CFD trading strategies on NASDAQ 100?
Before you start trading the NASDAQ 100, it is important to consider the two key strategies that can help ensure your success.
The first is the use of technical analysis. Using a trading platform, NASDAQ 100 traders can keep an eye on buy and sell signals such as MACD (Moving Average Convergence Divergence), MA (Moving Average), Rising Wedge and Oscillator indicators such as the RSI (Relative Strength Index).
The second is fundamental analysis. It is a trading on the NASDAQ 100 based on macroeconomic variables such as economic data (US interest rates, GDP, employment, etc.) and data related to the strength of companies in the index (such as market capitalisation, earnings and M&A activity). Based on this information, traders predict whether the NASDAQ 100 will rise or fall, by taking trades in kind.
