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E-Mini Nasdaq Futures

E-Mini Nasdaq Futures – How to trade the NQ

Index futures contracts are among the most traded derivatives nowadays since they provide a comfortable and easy way to ensure a well-diversified portfolio. Index futures contracts allow traders to speculate on the price movements of the underlying indices, including the S&P 500, Nasdaq 100, and more. That way, traders can ensure exposure to particular sectors or the entire market.

This guide focuses on the E-Mini Nasdaq futures (NQ) contract, which is among the most preferred instruments by Earn2Trade’s users. We will find out all the specifics about the underlying index, including its history, how it is calculated, and what makes the E-Mini Nasdaq 100 futures contract so popular. We will also compare it to other indices and explore how to trade the NQ.

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What is the Nasdaq 100?

Nasdaq 100 is an index tracking the stock prices of the 100 largest and most actively traded companies listed on the Nasdaq exchange and a part of the broader Nasdaq Composite Index.

The index includes constituents from various industries, including technology, industrial, health care, biotechnology, retail, and more. The technology sector holds the biggest weight, accounting for over 56% of the Nasdaq 100’s weight. That is why the index is often referred to as “tech-heavy.” After technology, the next industry with the biggest weight is consumer services, with around 25%.

Among the companies included in the Nasdaq 100 are Apple, Microsoft, Alphabet, Amazon, Tesla, Meta, and more. You can find the complete list of constituents here.

It is worth noting that the Nasdaq 100 doesn’t include any companies from the financial industry. Instead, they are a part of a separate index, the NASDAQ Financial-100.

To be included in the Nasdaq 100, a company should be listed exclusively on a Nasdaq exchange, either the Global Select or Global Market tiers. Other eligibility criteria include market capitalization, liquidity, stable financial health, and more.

Nasdaq first introduced the index on January 31, 1985. Its initial base price was 250. However, after the index closed at 800 on the last day of 1993, Nasdaq decided to reset its base to 125 starting from the first day of 1994. That same year, the Chicago Board Options Exchange (CBOE) introduced options on the index.

The first foreign companies were introduced to the index in January 1998. At first, the eligibility criteria for them were way more stringent. However, in 2022, the standards for foreign companies were relaxed to make all constituents subject to the same equal criteria.

How is the Nasdaq 100 Calculated?

Nasdaq 100 is a modified market capitalization-weighted index. In other words, the initial individual weights of the included securities are determined by dividing their market capitalization by the aggregate market capitalization of all constituents. The weights are then adjusted to ensure that no constituent bears significant weight in the index (the constraint for initial weight is 15%). This helps limit the influence of the largest companies and balance the index with all members. However, as with many other market-cap-weighted indices, the companies with the highest market value have a bigger influence on the price of the Nasdaq 100.

The value of the index is calculated by multiplying the aggregate value of the constituents’ weights by each constituent’s last sales price and dividing it by the index’s divisor.

You can find all the details about the Nasdaq-100 calculation here.

Nasdaq reviews the composition of the Nasdaq 100 every quarter – in March, June, September, and December. If needed, it adjusts the weightings to ensure that no company has over 24% weight in the index.

Nasdaq selects constituents in the Nasdaq-100 index once annually in December. In doing that, it uses market data as of the end of October and total shares outstanding as of the end of November. The changes in the index become effective after the close of trading on the third Friday in December.

E-Mini Nasdaq 100 Futures Contract Specs (NQ)

The Nasdaq 100 index isn’t itself an instrument that you can trade directly. However, there is an abundance of tradable assets based on it, including ETFs, CFDs, and futures contracts.

Among the most traded instruments tracking the performance of the Nasdaq 100 is the E-Mini Nasdaq 100 (NQ). It is listed on the Chicago Mercantile Exchange (CME) and is derived directly from the Nasdaq 100 index.

Contract Unit$20 x Nasdaq-100 Index
Price QuotationU.S. dollars and cents per index point
Trading HoursCME Globex: Sunday 6:00 p.m. – Friday – 5:00 p.m. ET (5:00 p.m. – 4:00 p.m. CT) with a daily maintenance period from 5:00 p.m. – 6:00 p.m. ET (4:00 p.m. – 5:00 p.m. CT)BTIC: Sunday – Friday 6:00 p.m. – 4:00 p.m. ETTACO: Sunday – Friday 6:00 p.m. – 9:30 a.m. ET. Monday – Friday 11:00 a.m. – 5:00 p.m. ET; CME ClearPort: Sunday 6:00 p.m. – Friday 6:45 p.m. ET (Sun 5:00 – Fri 5:45 p.m. CT) with no reporting Monday – Thursday 6:45 p.m. – 7:00 p.m. ET (5:45 p.m. – 6:00 p.m. CT)TACO: Sunday – Friday 6:00 p.m. – 9:30 a.m. ET and Monday – Friday 11:00 a.m. – 5:00 p.m. ET
Minimum Price FluctuationOutright: 0.25 index points = $5.00BTIC: 0.05 index points = $1.00TACO: 0.05 index points = $1.00CALENDAR SPREAD0.05 index points = $1.00
Product CodeNQ
Listed ContractsQuarterly contracts (Mar, Jun, Sep, Dec) listed for 5 consecutive quarters and 4 additional December contract months.TACO: Quarterly contracts (Mar, Jun, Sep, Dec) listed for 5 consecutive quarters and 4 additional December contract months.
Settlement MethodFinancially Settled
Termination of TradingTrading terminates at 9:30 a.m. ET on the 3rd Friday of the contract month.BTIC trading terminates at 4:00 p.m. ET on the Thursday before the 3rd Friday of the contract month.TACO trading terminates at 9:30 a.m. ET on the Thursday before the 3rd Friday of the contract month.
The full contract specs are available at the CME.

How to Trade the NQ?

To trade the NQ successfully, it is essential first to understand what factors affect its value over time.

The first and most important factor influencing the E-mini Nasdaq futures contract performance is the individual performance of its constituents. Since the index is heavily tech-influenced, the price changes in the stocks of tech companies are usually the main driver behind the index’s performance. However, this isn’t always the case and stocks outside the tech sector, like Amazon, for example, are also very influential. All-in-all, look out for changes in the prices of the constituents with the highest weight in the index.

E-mini Nasdaq is also highly correlated with the state of the US economy. During the past decade, when the economy was on an upward trajectory and the stock market was thriving, the Nasdaq 100 index registered around 18.2% annual return. It is also highly dependable on the market perception of the tech industry. For example, in the years before the dot-com bubble, the index registered average annual gains in excess of 80% – 100%. Understandably, when the bubble burst, the index experienced losses of up to 40% per year. After that, during the 2008 crisis, Nasdaq 100 dropped 40.5% due to the following recession.

Keeping an eye on the global economic and geopolitical scene is also essential. For example, when COVID-19 was declared a pandemic, the Nasdaq 100 index nose-dived. However, due to the highlighted role of technology and the boom in tech stocks, it closed the year up 43.64%. The invasion of Ukraine also negatively affected the index.

In a nutshell, to better predict the performance of the E-Mini Nasdaq futures contract, keep track of the factors affecting the stock prices of the Nasdaq 100 constituents.

E-Mini Nasdaq Futures Trading Strategies

Trading the E-mini Nasdaq futures is no different than trading other futures contracts.

It is a fruitful soil for all types of trading strategies, including day trading, swing trading, position trading, and more.

Regardless of your trading style, the first and most important thing is to know the fundamentals driving the NQ’s performance, which we listed above.

In addition, traders employ technical trading indicators that can help gauge entry and exit points, breakouts, reversals, and more. Those indicators vary based on each trader’s style and preference. Usually, they include a mix of lagging and leading indicators that measure and monitor the volume, the trend, the momentum, and the volatility. Learn what indicators to include in your trading strategy here.

Below we will go through two examples of how you can trade the NQ with the help of RSI and MACD.

If you want to learn how to use other indicators to trade the E-Mini Nasdaq futures contract, make sure to dive into our blog, where you will find in-depth guides on the most popular technical trading indicators.

Trading E-Mini Nasdaq-100 Futures Contracts with RSI

To put theory into practice, let’s go through an example of how we can use the Relative Strength Index when trading the E-Mini Nasdaq futures contract.

The RSI is very helpful for identifying oversold and overbought markets and deciding on the best entry and exit points. The indicator is an oscillator that has values between 0 and 100. When it moves below 30, the market is considered oversold (likely to go up), while when it moves above 100, the market is considered overbought (likely to go down).

Below is an example of how the RSI signals overbought and oversold market conditions on the NQ chart. The green zones indicate when the RSI has fallen below 30. The reliability of the signal is also boosted by the candles and the trading volume (you can complement it also with other indicators). Once the RSI gets back over the 30 levels, a trader can open a buying position. And vice-versa.

Check our dedicated guide to learn more about the different ways you can use the RSI and what signals it can produce.

Trading E-Mini Nasdaq-100 Futures Contracts with Moving Average Convergence Divergence (MACD)

The MACD is a trend-following momentum oscillator. It is based on two moving averages (a shorted 12-period Exponential Moving Average and a longer 26-period EMA). Looking at their behavior can help identify when a new trend is about to form.

The MACD is a powerful tool, and there are various ways to use it. However, we will go through the most popular one – looking for crossovers.

In the example below, you can see an illustration of a signal line crossover between the MACD (blue) and the signal line (red), which takes place when the MACD line crosses above or below the signal line. In the first situation, the MACD crosses the signal line from below, and we have a bullish signal. On the contrary, when the MACD crosses the signal line from above, the signal is bearish.

If you want to dive into additional MACD knowledge and explore other strategies, check out our dedicated guide.

E-Mini Nasdaq Futures vs. Other Indices

Considering that there are many futures on leading indices, it is natural to wonder how they differ so that you can make an educated choice on which are the best for your strategy and goals.

Before diving into that, we should first make the distinction between Nasdaq 100 and the Nasdaq Composite Index, which are often confused. The latter is the broader index that includes the stocks of all companies traded on the Nasdaq exchange (over 3,000).

Now back to Nasdaq 100 and how it compares to other indices and the futures contracts on them.

The most popular futures on indices, aside from NQ, are ES (on S&P 500), YM (on Dow Jones Industrial Average), and RTY (on Russell 2000). The most traded of these is the ES, followed by NQ, RTY, and YM, in that order. 

Let’s take a random day of the year (30th September 2022, for example), and compare the trading volume to get a sense of the difference in liquidity. The result is as follows:

  • ES – 2,978,136
  • NQ – 878,576
  • RTY – 323,625
  • YM – 217,761

Another difference is that the Nasdaq 100 includes companies incorporated outside the US (similar to the S&P 500). The DJIA and Russell 2000, however, don’t include foreign constituents.

Also, Nasdaq 100, alongside Russell 2000, is reconstituted annually (December for Nasdaq-100 and June for Russell 2000).

Unlike the S&P 500 and DJIA, the Nasdaq 100 doesn’t include stocks of financial companies.

The Nasdaq 100 differs from the Russell 2000 in regard to the size of the constituents. While the former includes some of the biggest companies by market cap, the latter covers only small-cap stocks.  

Reasons to Trade the NQ

We already mentioned that the E-Mini Nasdaq futures are among the most traded futures contracts globally, so now it’s time to find out why.

High Liquidity

NQ enjoys massive interest from retail and institutional investors and traders. The high liquidity results in tight spreads, making trading affordable and cost-efficient.

During October 2022, the NQ’s daily trading volume was between 600,000 and 1,000,000 contracts. The instrument was regularly among Nasdaq’s top 10 most traded futures contracts.

It is also among the most traded assets by Earn2Trade’s users and the prop traders at Helios, our proprietary trading partner. NQ and ES are by far the most preferred assets. Earn2Trade users also actively trade two other futures contracts on Nasdaq-100 and S&P 500 – Micro E-mini Nasdaq 100 (MNQ) and Micro E-mini S&P 500 (MES).

A Way to Trade Nasdaq 100

The NQ is a widely-preferred asset since it allows market participants to trade on the movements of the popular index with fewer fees and more controlled exposure.

In fact, the E-Mini Nasdaq futures are among the most cost-effective ways to gain market exposure to the leading index. Furthermore, thanks to the significant diversification of the underlying index, the NQ gives traders exposure to a broad range of industries and market-leading companies.

Unique Traits

The index is one of the few that allows foreign Nasdaq listings. This means you trading the NQ gives you access not only to leading US companies but also foreign ones listed on the Nasdaq subsidiaries.

In fact, Nasdaq 100 constituents constantly dominate the global brand power rankings, meaning that the NQ gives you an easy and straightforward way to trade the most successful companies.

Final Thoughts

As one of the leading global indexes, Nasdaq-100 is often a mainstay in the portfolios of retail and institutional traders and investors. It ensures excellent diversification and exposure to the most progressive companies and fastest-growing sectors.

If you want a convenient and cost-effective way to trade the Nasdaq-100, then the E-Mini Nasdaq futures contract (NQ) is among the best options. It is a highly-liquid market with tight spreads that is almost always open. Wonder what the best way to trade the E-Mini Nasdaq-100 futures contract is? Wonder no more since you are in the right place for it. Earn2Trade’s funded trader programs combine trading education, brought to you by renowned experts, with an evaluation phase that, upon successful completion, ensures that you will get an offer for a funded trader position at a prop trading firm. You will be able to trade with the firm’s capital and retain up to 80% of the profits you make. All of this without risking your money. How better can it get?

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