NASDAQ-100 Equal Weighted Index

Categories: Trading, Index Funds

Market capitalization. We know it, we love it, and we understand that when it comes to stock indexes, most of them are market-capitalization weighted.

And that’s all fine and dandy, but sometimes we’re in the mood for something different. When that happens, we turn our attention to the NASDAQ-100 Equal Weighted Index, which is like the NASDAQ-100 Index, but with a twist: it’s not market-capitalization weighted. “Gasp!” one might say, and to that, we say, “No, it’s cool, check this out.”

See, the index is made up of the top 100 non-financial companies (based on their market cap) listed on NASDAQ. We’re talking tech companies, restaurant chains, communications companies—all of ‘em. And each stock on there starts out life with a weight of 1%. (‘Cuz it’s an equally weighted index.) They perform how they’re going to perform, with each stock having an equal affect on the performance of the index as a whole, and then once a quarter the whole thing is rebalanced and we start again.

It’s pretty cool, and it gives us a different way to look at our favorite index: the NASDAQ-100. And different (if Arby's commercials are to be believed) is good.

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Finance: What are the NASDAQ and NYSE?74 Views

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Finance a la Shmoop. What are the NASDAQ and the NYSE? Nasdaq, yeah it stands for

00:09

National Association of Securities Dealers Automated Quotation-systems. And [NASDAQ defined]

00:13

yeah, it feels like they got cheated out of an S in there somewhere, like NASDAQ'S.

00:17

That's what happens when life's on a budget. So NASDAQ is an electronic

00:22

version of the original wall, as in Street, Wall Street, yah that. Where

00:26

well-dressed folks would come with cash in hand scream out a stock and a price [stock market in 1900s]

00:30

and then trade shares. They would trade for whatever was trending at the time. Like

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eyeball massagers, or wooden swimsuits, or motorised surfboards, all real things

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by the way. NASDAQ is the much more modern version of its predecessor NYSE.

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Is anything but nice when you lose money there. NYSE stands for New York

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Stock Exchange and it too was an outgrowth of the well-dressed folks at

00:54

the wall. There are two key structural differences in the two trading systems,

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the NYSE is an actual physical place, has a physical location, address, etc. and this [NYSE Building]

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is what it looks like. NASDAQ is really a concept, a religion, a

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network, it's not really a place. At least not a geographic place. The other big

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difference is the manner in which shares are traded. The NYSE is an auction-based

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system, one individual is a buyer of AMZN at $983.25, he screams electronically

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that number and then buys from whoever is willing to sell at that price.

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Individuals buy from individuals. That's an auction market. But NASDAQ is a

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dealer market, that is somebody deals in the stock. They go out into the market[online stock market]

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and buy say a million shares of whatever.com that was bought in the market

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conveniently for exactly ten bucks even. That dealer now makes a market in that

01:46

stock, ie the dealer is kind of you know, their own individual market. And she

01:50

moves with the market to manage the spread in the trades. Like she might have

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a narrow spread, where she's a buyer of the stock at $10.02 and a seller of the

01:59

stock at $10.07 a share. Or it's a really wild volatile stock, on a wild and [man and woman on rollercoaster]

02:04

volatile day, she might be a buyer only at $9.90 and a seller at $10.30, making 40

02:09

cents a share trade. Well you could do the fancy math that if she

02:13

keeps her inventory steady at a million shares and trades a million shares that

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day. Well with that spread she makes 40 cents times a million or 400 grand for

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the day's efforts. However after staring at a screen all day she's gonna have to

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spend at least some of that money on eye care. [woman in office]

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Thank goodness for those eyeball massagers.

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