If you look back over the past 25 years of stock market history you will find that it’s hard to beat the performance of the NASDAQ 100 stock index. The NASDAQ 100 is the 100 largest non-financial stocks that trade on the NASDAQ stock exchange. In general, it out performs the S&P 500 when the market is advancing and under performs the S&P 500 during periods of decline. Therefore, when the economy is improving many investors look for exposure to this index.
The most popular way to invest in the NASDAQ 100 is through the ETF which trades under the ticker symbol QQQ. This ETF is designed to track the performance of the NASDAQ 100 stock index less fees and expenses. It is one of the most popular ETFs trading about 50,000,000 shares per day.
In recent years another innovation in the ETF world has been the use of leverage. There is a 200% or 2x leveraged version that tracks the index and it trades under the ticker symbol QLD. The goal of this fund is to move up or down 2% (on a daily basis) for each 1% move in the NASDAQ 100 index (less fees and expenses).
For even more leverage ProShares also offers the 300% (3x) leveraged NASDAQ 100 ETF which trades under the ticker symbol TQQQ. These leveraged versions are popular with active traders but only trade a fraction of the volume of the QQQ.
The most leveraged way to gain exposure to the NASDAQ 100 is through the NASDAQ 100 stock index futures. The most popular version is the electronic E-Mini contract (ticker symbol NQ). This contract is valued at $20 times the index so if the NASDAQ 100 is at 2700 the total value of the contract is $54,000. Since the margin requirement to hold this contract is only $3500 at the current time, this give you 15 to 1 leverage which makes the leveraged ETFs look meek in comparison.
These leveraged products are designed for active traders and experienced professionals who monitor their positions closely. Long term investors are much better off in the QQQ which over time has out performed almost all other stock indexes. In fact, due to the fact that the NASDAQ 100 has a higher beta than the S&P 500 there is absolutely no reason why the average investor would want to add additional risk to their position.
Many day traders trade stock indexes and make a successful living. Now days, almost every stock exchange in the world has got a stock index associated with it like the famous Dow Index, NASDAQ, FTSE, CAC, DAX, Hang Sen and so on. Currently more than 70 stock index contracts are traded on at least 20 exchanges in the world. You don’t need to trade every major futures contract in the world to be successful. You just need to find one or two these futures contracts with which you are comfortable.
So stock index futures are contracts based on indexes that are composed of stocks. For example, S&P 500 futures are based on the famous S&P 500 Index; a group of 500 commonly traded US stocks. When you are trading these futures, you are betting on the general direction of the market not on some individual stocks. This way you are blocking out a good deal of noise that is associated with the daily gyrations in the stock prices. Stock index futures are used for both hedging as well as speculation. These futures are used by hedge fund managers in hedging their stock portfolios.
The most popularly traded stock index futures contract is the S&P 500 futures. It trades on the Chicago Mercantile Exchange (CME). S&P 500 Index is made up of 400 industrial companies, 40 financial companies, 40 utilities and 20 transportation companies offering a fairly diversified view of the US economy. One tick on S&P 500 contract is worth $25. So there is an inbuilt element of leverage in these futures contract.
If the S&P 500 moves one point, you either make $250 or lose $250 depending on which side of the market you were. These contracts also get traded on the GLOBEX Electronic Platform after the regular trading hours. Margin requirements can vary. If the S&P 500 Index is at 1000 points, the contract is worth $250*1000=$250,000. A huge amount for most of the day traders.
NASDAQ-100 Futures Index contract is the second most popular stock index futures contract. It is based on the famous NASDAQ 100 Index that includes many technology and biotech firms. The margin requirements for this contract maybe too high for most day traders. Similarly, Dow Futures are written on DJIA. Due to these facts, a mini version of these contracts was introduced.
E-mini S&P 500 (ES) and e-mini NASDAQ 100 (NQ) are among the most popular stock index futures contracts as they enable you to trade the market trend with only one fifth of the margin requirement.