Presentation of the Nasdaq Composite stock index

If you are probably already familiar with the Nasdaq 100 stock market index, the Nasdaq Composite index is a little less familiar to traders. We therefore propose, through this article, to learn more about it with a presentation of this index, the different eligibility criteria for companies within it and its history.  

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Presentation of the Nasdaq Composite stock index

Global presentation of the Nasdaq Composite :

The Nasdaq Composite is a stock market index that includes ordinary shares as well as equivalent securities such as ADRs, tracking shares and corporate interests. Of course and as its name indicates, this index is listed on the Nasdaq US stock market under the stock symbol IXIC.

The Nasdaq Composite Index is currently one of the most closely followed stock market indices in the US financial market, along with the Dow Jones Industrial Average and the S&P 500.

As is the case with the Nasdaq 100, the Nasdaq Composite is composed mainly of companies operating in the information technology sector. So what is the difference between the Nasdaq 100 and the Nasdaq Composite? Actually, the Nasdaq 100 is composed of a subset of the Nasdaq Composite. It represents almost 90% of the movement of the Nasdaq Composite and there are many ETFs that track its performance.

The composite is calculated by taking into account the sum of the proceeds of the closing price and the capitalisation-weighted portion of the index of more than 2,500 securities that make up the index. The result is then divided by a divisor to reduce the order of magnitude of the index.

 

What are the requirements for a company that is part of the Nasdaq Composite Index?

In order to be included in the Nasdaq Composite Stock Index, a U.S. company must be listed exclusively on the U.S. NASDAQ Stock Market unless it has been listed twice on another U.S. market prior to 2004 and has continuously maintained that listing. In addition, other admission criteria are known as :

  • Being an ordinary share
  • Corresponds to the interests of limited partnerships
  • Corresponding to Real Estate Investment Trusts or REITs
  • Be a profit sharing or BMI-SBI action
  • Or correspond to a monitoring of stocks

As such, the Nasdaq Composite Index excludes from its composition closed-end funds, exchange traded funds, preferred shares, rights, warrants, units and other derivative securities. When a security that is part of this index no longer meets the above criteria, it becomes ineligible for inclusion in the composite index and is removed from the index.

 

History of the Nasdaq Composite Index :

The Nasdaq Composite Index was created in 1971 with a starting value of 100 points. Since that time, the price of this index has followed a very strong upward trend, despite several periods of decline.

The first Nasdaq Composite record was set in 1995 with the level of 1,000 points, then in 1998 with the achievement of 2,000 points. At the end of 1999, the index closed at 4,069.31 points and reached another peak in March 2000 at 5,132.52 points.

The bursting of the internet bubble will then cause the price of this index to fall, which will then lose 78% of its value in barely 30 months. The lowest point of this trend was reached in October 2002 at 1,108.49 points.

While it reached several peaks in 2007 with a closing at 2,800 points on October 9th of this year, the Nasdaq fell once again at the beginning of 2008 and finished at 2,300 points in February. The financial crisis that then hit the world did not spare the Nasdaq Composite, which lost more than 200 points in September 2008 and fell back under the 2,000 mark. The lowest level over 6 years will be reached on 9 March 2009 at 1,265.52 points.

As the global financial crisis eases, the Nasdaq Composite then begins a volatile recovery and will eventually climb back towards the 3,000 point level in February 2012 before making further corrective pullbacks. The annual closing of this index in 2012 will thus reach 3,019.51 points.

2013 will also be an interesting year for the Nasdaq Composite, which will benefit from the extension of relatively low tax rates for most income. In November 2013, the Nasdaq Composite will reach a new record above 4,000 points. The annual closing of 2013 will thus be at 4,176.59 points. Subsequently, in March 2015, the Nasdaq Composite will reach a new record of over 5,000 points.

However, it will take another two years for the index to pass the 7,000 point mark. Following this sharp rise, the Nasdaq Composite was closed for the first time since the internet bubble on 16 January 2018. In the same year, the stock market index will lose nearly 20% below its peak on 29th August. However, from 2019, the Nasdaq Composite index will rebound by 20% from its low of 24 December 2018, but still below the previous year's record.

The Nasdaq Composite stock market index currently stands at 11,000 points as of August 6, 2020.

 

Is it possible to invest in Nasdaq Composite and how?

You may already have known that it is possible to speculate directly on the price of certain stock market indices. However, this does not mean buying Nasdaq or other indices or selling them, but rather investing in funds or financial instruments that replicate and track their performance. Indeed, the Nasdaq Composite, like other stock market indices of this type, is not governed by supply or demand but is calculated according to the market capitalisation of the companies that make it up.

To speculate on this index, it is therefore necessary to closely monitor these companies and more specifically the sector of activity related to technology and technological information.

But you can also speculate on the values that make up the Nasdaq Composite and there are many of them. Most of the time, however, you will find financial instruments dealing only with the most important stocks, in other words, the stocks that are part of the Nasdaq 100 index, which is, let's remember, a subset of the Nasdaq Composite. This choice of brokers and financial intermediaries is due to the fact that the companies in the Nasdaq 100 have a larger capitalization but also more liquidity, which makes them more attractive than the others.

To make this type of investment, you can either buy securities of these companies through a traditional stock market investment product or use specific financial instruments that bet on the rise or fall in the price of these securities, such as CFDs or contracts for difference, which are offered by most online brokers. Of course, the investment strategy will not be the same depending on the solution chosen and you must make this choice carefully.

Frequently Asked Questions

What does the term NASDAQ mean?

The term NASDAQ actually means National Association of Securities Dealers Automated Quotations. The Nasdaq is currently the second largest equity market in the United States in terms of volumes traded and is thus positioned just behind the New York Stock Exchange or NYSE. It is also currently the largest electronic equity market in the world. The Nasdaq Composite is one of the major indices of this market.

What is the difference between Nasdaq, Nasdaq 100 and Nasdaq Composite?

The Nasdaq is actually the market on which stock market values are listed and is therefore not a stock market index. The Nasdaq 100 is a stock market index which, as its name indicates, includes the 100 most highly capitalised stocks on the market. Finally, the Nasdaq Composite is the market's broader stock market index, which takes into account more than 2,500 stocks of companies listed on the market, including those in the Nasdaq 100.

What are currently the greatest values of the Nasdaq Composite?

The Nasdaq Composite has some of the world's largest capitalisations among its listed stocks. These include the Apple group, but also other giants in this sector such as Microsoft, Google, Amazon, Facebook, NVidia, Netflix, Intel, Cisco, Comcast, Oracle, Adobe, Starbucks, Gilead Science, Celgene, Yahoo, Baidu, Ericsson, Ebay and many other stocks that you can invest in online or buy as part of your traditional stock portfolio.

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Trade on the Nasdaq Composite!
76.4% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.