If you are interested in the stock market, it is impossible not to know about the NASDAQ index. So what is the NASDAQ index and what outstanding features does it have compared to other indices? Let’s learn about NASDAQ with Learn Forex Trading in the article below.
General information about the NASDAQ index
NASDAQ is a stock index used by many investors to analyze and track stocks. In addition, it also helps measure the performance of large capitalization companies on the NASDAQ exchange.
Find out what NASDAQ is.
NASDAQ is National Association of Securities Dealers Automated Quotations. A famous decentralized stock exchange in the US. In addition to being an exchange, NASDAQ also represents an index. It is built based on the stock prices of companies listed on this exchange. The NASDAQ index allows investors to evaluate the performance of the stock market daily.
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History of the formation of the NASDAQ index
NASDAQ has been in operation since February 8, 1971. Initially, it was simply a small platform. Born to create conditions for investors to buy and sell stocks transparently and quickly. At that time, the difference between the bid price and the asking price of the stock was very large. Create favorable conditions for stock brokers to profit from this difference.
A few years later, NASDAQ progressed to become a real stock exchange. When applying an automatic stock trading and reporting system. In 2002, NASDAQ shares were listed on the stock market. It is overseen by the Securities and Exchange Commission (SEC). This attracts many investors because of its fairness and convenience of access.
What are the characteristics of the NASDAQ index?
NASDAQ is one of the top 3 most followed stock indexes in the US stock market, along with S&P 500 and Dow Jones. It features an exclusive listing on the NASDAQ exchange. The NASDAQ index includes all stocks listed on the exchange. While the NASDAQ 100 only focuses on the top 100 non-financial companies in the world, the majority are in the technology sector.
NASDAQ has had strong growth, despite January 2020, a time when the world economy was heavily affected by the COVID-19 pandemic. This index has increased by 60% since that time. NASDAQ fluctuations also have an impact on the USD and other currencies and financial values. NASDAQ has a market capitalization rule that limits it to 24%.
What is information about the NASDAQ index?
Indices on stock exchanges are a collection of stocks. It is used to provide an overview of the market’s performance. While the NYSE uses the Dow Jones Industrial Average (DJIA) as its main index, the NASDAQ uses two indexes, Nasdaq Composite and Nasdaq 100.
NASDAQ Composite Index
NASDAQ Composite is a unit that measures the volatility of more than 3,000 companies listed on the NASDAQ exchange. This index includes the following 7 types of securities:
- American Trust Certificate – ADR.
- Shares for SBI holders
- Capital contribution interest rate
- Ordinary shares
- Common shares
- Real estate trust fund.
- Tracking Stocks
However, the NASDAQ index Composite does not include derivatives, preferred stocks, exchange-traded funds, and debt securities.
NASDAQ-100 Index
The NASDAQ 100 is a measure of the 100 companies with the largest market capitalization on the NASDAQ exchange. These companies represent the global economy. They operate in fields such as finance, technology, telecommunications, services, retail and many others. Examples include Apple, Facebook, Microsoft, and many other companies. To be included in the NASDAQ 100, companies must meet the following six criteria:
- The company’s capitalization value must be among the highest in the market.
- The company must have been listed on NASDAQ for at least 2 years.
- The company’s trading volume must be high, at least 200,000 shares/day.
- The company must comply with quarterly and annual reporting requirements.
- The company is not subject to transaction restrictions.
- The company must not be at risk of bankruptcy.
NASDAQ 100 Index
Companies that satisfy these criteria are included in the NASDAQ index 100. This helps gauge the performance of the top companies in the market.
Other NASDAQ indexes
In addition to the two main indexes, Nasdaq Composite and Nasdaq 100, NASDAQ also has two other sub-indexes: Nasdaq Biotechnology and Nasdaq Financial Index. The Nasdaq Financial 100 is the opposite of the Nasdaq 100. It represents companies in the insurance, banking, and finance sectors, investment companies, mortgages, and other financial sectors. The Nasdaq Biotechnology Index is a stock index. Formed from securities of companies listed on NASDAQ in the fields of biotechnology and pharmaceuticals.
What are the advantages and disadvantages of the NASDAQ index?
NASDAQ index is one of the important concepts. It is mentioned a lot in the field of economics and finance. The popularity of NASDAQ in the stock market is due to the following advantages and disadvantages:
What are the advantages of NASDAQ?
The NASDAQ 100 includes stocks of many of the world’s leading technology companies. Currently, 47.25% of stocks in this index are in the technology sector. Therefore, all activities of companies on NASDAQ reflect the global economic situation. This allows investors to rely on the NASDAQ index. From there, you can monitor fluctuations in the market and make appropriate trading decisions.
This also makes NASDAQ the ideal exchange. For investors who want to own stocks of leading technology companies such as Apple, Alphabet, Amazon, Tesla,… NASDAQ criteria are very strict and strict. Therefore, companies whose shares are traded on this exchange must meet many requirements. Besides capacity, companies must have global growth potential. This helps reduce investors’ risks when owning stocks on the NASDAQ exchange.
NASDAQ also brings great profits to investors. Currently, the fields of technology, finance, healthcare, etc. It has strong growth prospects. NASDAQ owns many companies in these sectors. Therefore, this index shows a superior growth trend compared to other stock indexes. For example, Dow Jones or S&P 500. This means that investors have a high chance of achieving large profits.
Disadvantages of the NASDAQ index
One drawback of this index is the very high proportion of technology stocks. This is why it is considered a high-risk investment group. Additionally, this index often has greater fluctuations than other stock indexes.
Is it difficult to play NASDAQ?
How to play NASDAQ is not necessarily difficult. However it requires investment in knowledge and skills to achieve success. Companies listed on the NASDAQ exchange are the most important factor. Stock prices change based on the business activities of these companies. When companies do well, this index will increase, and vice versa.
The US technology market has a major influence on NASDAQ. Because technology companies are heavily weighted in both the NASDAQ Composite and NASDAQ 100, technology companies contribute strongly to the volatility of the NASDAQ index. In addition, economic policies and political events in the US also have a great impact on this index. Economic policies and political fluctuations have a major impact on the stock market.
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How to calculate the NASDAQ index for newbie
To analyze the NASDAQ Composite and identify trends and trade points. You can use technical tools such as MACD indicator, Moving Average, Bollinger Bands, RSI indicator, and many other tools. For example, we can use a 200-day moving average to analyze trends and trading points with the NASDAQ Composite. The NASDAQ 200-day moving average increased and the price crossed below the MA. This could be a buying opportunity. Conversely, if the moving average falls and the price cuts the MA from below. This could be the time to sell before the NASDAQ returns to a downtrend.
In addition, the use of fundamental analysis methods is also important. Investors should consider factors that affect the price of the index. Which includes the macroeconomic situation along with index components such as fluctuations of large companies, FED policies, and trade wars. In addition, combining other tools such as resistance, support, price channels, and Elliott waves. Using multiple appropriate time frames also supports effective NASDAQ investing.
In addition to NASDAQ, traders can also learn more about the Nikkei index to better understand indexes in stock and forex trading.
Epilogue
The NASDAQ index has a great influence on US and international financial markets. Tracking this index helps investors improve their chances of success in investment activities. However, it is necessary to be aware that investing in the stock market still carries many potential risks. Hopefully, the above article of Learn Forex Trading has helped investors better understand NASDAQ.
Have you frequently asked questions
What is the NASDAQ index?
NASDAQ index usually refers to the NASDAQ Composite Index or NASDAQ 100. It is a composite stock market index.
What are the benefits of trading with leverage on NASDAQ?
Trading with leverage on NASDAQ brings several main benefits such as Increased profitability, increased liquidity, increased investment opportunities, and Diversification.
Why is the NASDAQ 100 important to traders?
Because through NASDAQ, traders can monitor market trends. This index can also be used as an investment and trading tool.
