Oftentimes, when talking about stock markets and stock indices with other people, we may face misunderstanding, indifference, and a complete lack of interest on their part. It may seem that these concepts have nothing to do with the life of an ordinary person. However, it is a serious misconception. Historically, stock indices have become one of the most reliable indicators reflecting the current state of a country’s economy. After all, a stock index is not just a set of mysterious digits but information regarding the stock value of companies in a particular sector or major manufacturing corporations.

Notably, this is not all. Based on the main stock indices, experts and analysts from all over the world make their short-term and long-term forecasts for the economy of a particular region, as well as for micro- and macroeconomic indicators of the world economy. It is impressive, isn't it? Indeed, stock indices are recognized as an essential analysis tool used for determining global economic indicators. In this article, we will talk about one of the most popular and significant US stock indices - the Nasdaq.

What does Nasdaq represent?

The Nasdaq index is the market capitalization-weighted index of 5,000 companies of the high-tech sector and listed on the NASDAQ exchange. It is calculated based on the principle of a simple moving average, where the weighted average cost of stocks at the end of a trading session is calculated.

The Nasdaq contains over 10 various indices, including the Nasdaq Composite. It is the largest stock index that covers more than 2,500 stocks. It can be called the key stock index on the NASDAQ exchange because when market participants mention the Nasdaq, they usually refer to the Nasdaq Composite.

The two other major representatives of the Nasdaq index family are the Nasdaq 100 and the Nasdaq Biotechnology. Let us now evaluate them in depth.

The Nasdaq 100 began in 1985 at a base value of 125. Today, this stock index is made up of 100 biggest non-financial companies listed* on the NASDAQ exchange. These are mainly software developers, as well as communication, retail, and wholesale trade firms. Alphabet Inc, Amazon.com, Inc eBay Inc, Intel Corp, and Google Inc are the most popular companies among them.

On the chart below, you can find the current dynamics of the Nasdaq 100.

The Nasdaq Biotechnology contains stocks of 200 biotechnological and pharmaceutical giants. This index reflects the state of US medicine and healthcare in some way. The Nasdaq Biotechnology began in 1993 at a base value of 200.

This is a highly-liquid stock index that greatly depends on new discoveries and effective solutions in the healthcare industry. So, any significant breakthrough in research triggers an instant rise in the stock index, whereas unsuccessful research provokes a sharp decline.

Between November 2020 and February 2021, the Nasdaq Biotechnology showed a spectacular leap amid the news of successful COVID-19 vaccine trials. Back then, the sector's performance increased by 20%. Later, however, it returned to its usual volatile state.

*Listed is a term that describes a company that is included on a stock exchange so that its stock can be traded.

Track FX quotes and the Nasdaq index family online in a specific section on the InstaForex website.

How to invest in Nasdaq index?

If this detailed review of the Nasdaq index makes you think about stock trading, you should find answers to the following questions first: how to open an account on the exchange and how to trade there? The answer to the first question is simple - you need to find a reliable and trustworthy broker. For instance, it will take you only 3 minutes to register an account with InstaForex.

So, you have opened an account and can now start trading. Again, there is nothing difficult about it. All you need to do is make a deposit, find information about assets you want to buy, and open a trade using a convenient trading platform. Investors prefer to use MetaTrader 4 for trading the Nasdaq index. You can find out more about this trading software in a specific section on the InstaForex website.

If you plan to trade the Nasdaq index, you will need to decide on an effective trading strategy.

Trading based on fundamental analysis is considered the best strategy for the novice, professionals say. This approach is based on monitoring the news of the high-tech world in general and of each chosen company from the Nasdaq index family.

Above all else, an investor should know for sure what company is the leader/outsider by market capitalization, as well as in terms of stock price growth, in the current quarter. It is equally important to keep track of what is going on in the United States and the world. Investors should also keep up with the latest news about the coronavirus pandemic, vaccine rollout, lockdowns, restrictions in the business sector, and the state of leading global markets*. Such knowledge will help a trader to gain a short-term and long-term outlook for the stock index.

Nowadays, the Nasdaq index family is seen as an attractive instrument by investors all around the world. It provides traders with valuable information on the stock market and allows them to make a tangible profit from a sharp rise in IT stocks. So, when the Nasdaq index is traded higher, it indicates a bullish market and signals investors to open long positions. Above all else, this stock index is an excellent hedge against manipulations of stock prices of separate companies.

Find out details on what is currently going on in the world and in separate countries, as well as about the leading economies, on the Analysis page of the InstaForex website.

Conclusion

The Nasdaq is the leading index that tracks companies listed on the NASDAQ stock market. In addition, it is the most informative index when it comes to reflecting the performance of the global high-tech market. The index instantly turns bullish every time this market shows positive dynamics, giving traders an opportunity to generate a handsome profit.

At the same time, all the indices in the Nasdaq family are expected to grow in the next 1-3 years, analysts argue. Meanwhile, it might be unprofitable to invest in biotechnology in the short term.