How to Trade on the Nasdaq 100 Movements
The Nasdaq 100 is not in itself a tradable instrument. Traders who want to gain exposure to the Nasdaq 100 without purchasing the underlying shares that make up the index can choose to trade Mutual Funds, ETFs, and Futures-based CFDs. This allows them to trade on the movements of this popular index with fewer fees and more controlled exposure.
CFD Instruments for Trading Nasdaq 100
Futures CFDs
Futures for Nasdaq 100 (US- Tech 100) work similarly to futures for commodities.
Using Futures-based CFDs allow you to trade irrespective of whether you believe an index will rise or fall, and without having to own the underlying asset. Plus500 traders can trade the Nasdaq 100 index online by opening a long or short position on the instrument ‘US-Tech100’.
For example, if a trader believes that the price of the Nasdaq 100 will rise, they can open a ‘Buy’ position on US-Tech 100. This places them in a position where they could profit from the index’s movement, should it rise above the price at which the position was opened. Conversely, this exposes them to risk, since if the value of the instrument falls below their opening price, they will incur a loss.
If the trader believes that the price will fall, they can trade CFDs on the Nasdaq 100 by opening a ‘Sell’ position on US-Tech 100, also known as ‘going short. In contrast to a ‘Buy’ position, a ‘Sell’ position allows a trader to profit when the index loses value. If the value of the index drops below the price at which the position was opened, the trader will make a profit. If the value rises above the opened value on a Sell position, then the trader will incur a loss (the difference between the opening price and the higher closing price).
Options* CFDs
Options CFDs allow you to trade on the value of an Options contract instead of the underlying instrument itself.
Benefits: Options are generally traded at a lower price than the asset on which it is based. This means that a trader can gain exposure to the instrument at a lower price, or gain more exposure than they would have, had they opened an index futures CFD on the underlying instrument.
Risks: While the lower price and heightened risk may be what some traders are looking for in Options trading, Options are also highly volatile instruments which can swing higher or lower suddenly, without notice. For this reason, Options are generally traded by experienced traders.
ETFs*
Exchange Traded Funds (ETFs) comprise various securities and tradable assets but act as a single instrument. They commonly mimic or closely copy other popular country indices or sectors.
A popular ETF to track the Nasdaq100 is QQQ*. ETFs differ from futures in that they are traded during regular trading hours. In addition, their pricing may be at a lower valuation than a whole index, allowing traders to open positions with less equity.
NASDAQ 100 Trading Strategies
Trading the Nasdaq100 works similarly to trading other instruments. However, in comparison to trading shares, there are no specific company earnings reports or other insights to observe. This implores traders to rely on trading strategies such as these:
Swing Trading
Swing trading refers to opening a position based on market trends.
Before opening a position, a Swing Trader will rely on technical analysis tools such as charts and other key information to understand the underlying instrument’s behaviour and predict if it will rise or fall. These positions are commonly held for a medium period of time but can be closed at any point, should the trader want to close their position.
Day Trading
Day trading focuses on a position, or positions, that are open and closed on the same day.
For example, a trader opens a position, hoping it will move in a favourable direction throughout that day. Before that day’s trading ends, they close the position and are left with either a profit or a loss.
Position Trading
Position trading refers to a trader who holds on to an open position for an extended period of time, such as weeks or months, hoping it moves in their favour.
For example: A trader opens a buy position on five futures CFDs on US-Tech 100 on Monday. Speculating that the price will rise, they may wait until the end of the month before closing their position. This allows them to gain exposure to weeks of trading, in comparison to Day Trading which limits a trader to a single trading day.
Trading on the movements of the Nasdaq 100 using US-Tech 100 allows traders to gain exposure to the Nasdaq’s top 100 companies in a single instrument.
*Subject to operator.
