What is the NASDAQ Composite (US stock market) index?

NASDAQ Composite

The NASDAQ Composite is an index featuring 3,500 common stocks listed on the NASDAQ stock exchange. It's one of the most followed US indices, along with the Dow Jones Industrial Average and the S&P 500.

The majority of companies listed on the NASDAQ Composite are technology companies, such as Apple, Amazon, Netflix, Dell, Cisco and Oracle. The exchange also includes the NASDAQ-100, an index of the largest non-financial companies listed on the NASDAQ stock exchange.

Since its 1971 launch, the NASDAQ has grown to become the second-largest stock exchange after the NYSE in terms of market capitalisation.

NASDAQ Composite history

When it was created in New York, the NASDAQ was the world's first electronic exchange, which enabled it to attract new technology companies, such as Microsoft, IBM and Oracle. The composite index started with 50 companies and a starting value of 100, with the number of companies rising to over 3,500 today and the index reaching a high of 14,095 in February 2021.

The boom and the dot-com collapse

During the boom and the dot-com collapse, the NASDAQ Composite posted mixed results between 1995 and 2005. In the summer of 1995, the index broke the 1,000-point mark for the first time. It was followed by a steady increase, peaking at 5,133 in March 2000.

In April 2000, the index fell to 3,226 and reached its most recent low in October 2002, at 1,108.49. After the crisis, the index gradually recovered until 2007/2008, when the global financial crisis erupted.

The financial crisis

In the first quarter of 2007, the index hit an intraday level of 2,862, the highest value since the dot-com bubble collapse. In September 2008, the index lost nearly 200 points, dropping below 2,000. In March 2009, the NASDAQ Composite closed at a low of 1,265.49.

Subsequently, the index gradually recovered with the help of the US Federal Reserve's quantitative easing (=printing fake cash) programme. In April 2015, the index broke a 15-year record of over 5,000 points.

NASDAQ Composite inclusion criteria

For a security to be considered for listing on the NASDAQ Composite, it must meet the following criteria:

  1. The security must only be listed on the NASDAQ exchange. The only exception to this requirement would be if the security was listed on another US stock exchange before 2004 and is still on it.
  2. The security must be one of the following types of securities: American Depository Receipts, common stock, Economic Interest Shares, Real Estate Investment Funds, limited partnerships and Tracking Stock.
  3. If the stock doesn't meet these requirements, it is ineligible for the NASDAQ Composite and is removed.

NASDAQ Composite market categories

Stocks listed on the NASDAQ Composite index fall into one of three market categories, based on the listing requirements they meet. The market categories are as follows:

1 - Capital market

The capital market has the least stringent requirements of the three market levels. It is an equity market for companies with a small market capitalisation. It was previously known as the "small cap" market before being renamed the capital market.

2 - Global market

The global market consists of medium-sized companies, and these companies must meet the NASDAQ's liquidity and funding requirements. This market has 1,450 stocks that are listed in the US and on other international stock exchanges.

3 - Selected global market

The selected global market has the most stringent requirements in terms of funding, liquidity and corporate governance. The companies that meet these requirements are mostly large-cap companies. It includes 1,200 US and international stocks. The NASDAQ listing qualifications department reviews these companies annually to determine their eligibility for this market.

Calculating the NASDAQ Composite index

The NASDAQ Composite is calculated using a market capitalisation-weighted method. This means that the largest companies listed on this exchange have the greatest impact on the end value of the index. The index is calculated by taking the total value of the weightings of all the stocks on the exchange, multiplied by the closing price of each stock. It is then divided by a divisor to obtain a figure that's better for reporting purposes.

The NASDAQ index is calculated constantly in real time, but the final confirmed value is calculated at 16:20 Eastern Standard Time at the close of each trading day. The final value is the NASDAQ price published in financial news channels and publications.

Chart of the NASDAQ's evolution since the 1930s

NASDAQ Composite chart

How does one invest in the NASDAQ using an ETF/tracker?

It's hard to find a tracker that tracks the 3,500 stocks of the NASDAQ Composite, so you can choose to invest on the NASDAQ-100 with ETFs through brokers such as DEGIRO.

The Nasdaq-100 is one of the main growth indices for large caps around the world. It includes 100 of the world's largest non-financial companies listed on the Nasdaq Exchange based on their market capitalisation.

The Nasdaq-100 index is made up of some of the most innovative technology companies, including Amazon, Costco, Adobe and Cisco. These iconic brands partner with Nasdaq to seamlessly connect business, capital and ideas.

Répartition NASDAQ-100

ETFs (exchange traded funds) are listed investment products that track the performance of a group or "basket" of stocks, bonds or commodities. These "baskets" are basically indices. An example of an index is the NASDAQ-100 index. An ETF can be bought or sold in the same way as an ordinary share. Investors save time and money because ETFs allow an investor to invest in a variety of asset classes through a single listed investment product.

Here are a few popular ETFs for investing on the NASDAQ-100:

  • Lyxor NASDAQ 100
  • iShares NASDAQ 100
  • Amundi ETF PEA NASDAQ-100

Trading the NASDAQ-100 with CFDs

Active and more experienced traders generally prefer CFDs. CFD stands for "contract for difference". This is a special type of derivative product offered by brokers, where you trade the difference in price of an asset between when you open the trade and when you close it - you're not really buying the underlying asset.

One of the selling points of this type of investment is the flexibility it allows and the leverage effect that increases the potential for profit (and loss). In a traditional transaction, you are required to buy the asset so that it moves in one direction, upward. With CFDs, on the other hand, the choices are much more open. You can speculate on the upward or downward movements when you buy the contract.

Here is a selection of some CFD brokers:

The values in this table are indicative, they may have changed since the writing of this article. Only the information provided on the brokers' sites is updated regularly.

US100.CashAverage spreadLeverageLong swapShort swap
1 1:20 -1.071-1.009
2.01 1:20 -0.06 -2
1 1:20 -0.580 -0.580
1 1:20 -0.867 -0.800
CFD trading involves significant risk of loss, so it is not suitable for all traders (73-88% of all retail investor accounts lose money when trading CFDs).