E-mini Nasdaq-100: 5 Reasons to Start Trading

Understand why trading the E-mini Nasdaq-100 (NQ) is a good idea. Invest in the top non-financial companies with lower capital gains tax and low margin requirements.

1. Grow With the 100 Leading Companies

The Nasdaq-100 index lists the 100 largest non-financial companies on the Nasdaq stock exchange based on market capitalization. The companies that make up the index are reviewed every quarter to make sure that only top-performing companies remain or are otherwise kicked off the list.

In March 1999, the Nasdaq-100 ETF (QQQ) was launched. A few months later, CME Group introduced an E-mini futures contract (NQ). Both products have become popular instruments to trade because investors would be able to invest in a basket of technology stocks with the click of a mouse.

Both products are a great way to gain exposure to the US technology sector without having to analyze the financials of individual companies. This way, your investment is automatically diversified.

2. Lower Costs and More Efficient Than ETFs

When you compare futures with ETFs, it should come as no surprise why futures far out-trade ETFs:

  • Management fees: While ETFs have a yearly management fee, there are none with futures contracts.
  • Capital efficiencies: Futures margins are capital-efficient at around 6% of the notional amount. Reg T margins with ETFs are 50% of the value.
  • 24-hour trading access: Futures trade nearly 24 hours, six days a week with little tracking error to the underlying index. ETFs can’t be traded 24 hours a day and have vastly diminished liquidity outside of regular trading hours which also exacerbates tracking errors.
  • Tax advantages: A profitable short-term trade with futures will cost less in taxes than with an ETF due to IRS Section 1256 treatment (60/40 blend of short and long-term gains). All short-term profits with ETFs pay ordinary income rates.

3. Magnify Gains With Long Positions

To succeed with technology stocks, you need to at least keep up with the Nasdaq-100 benchmark. Since the NQ requires only 6% margin to trade, investors can trade them in addition to their existing portfolio of stocks.

This was exactly what our member Philip did. He’s a long-term investor who joined a few months ago to copy our trading signals. Although he’s profiting from his investments, he wasn’t sure whether he can beat the Nasdaq-100.

As his entire net worth is already invested in stocks, his capital is insufficient to buy an ETF on top. Our trading signals for the E-mini Nasdaq-100 futures were a perfect fit and Philip is notified on when to buy and sell at the right time. The profits from the NQ are a great boost to his portfolio. Due to low margin requirements, Philip can easily manage additional exposure to magnify gains.

4. Profit During Market Corrections

We all know how to buy stocks. When it comes to hedging against market corrections, however, most investors understand little about it. Hedging is an underrated skill and a significant edge over the long run.

As the stock market falls, frantic investors will dump their positions out of fear. Shorting the Nasdaq-100 would be a much wiser strategy to cushion losses. A portfolio that is consistently cushioned during corrections will outperform an unhedged portfolio by a wide margin.

Identify the perfect entry point when the market reverses and there will no be a need to worry like other investors. We notify you automatically of our short trading signals. Short signals will be particularly interesting in your case.

5. Build Cash Reserves to Buy More Stocks

Individual stocks must be sold in order to realize profits. Futures are different. Gains and losses on futures contracts are settled daily, even if you have not closed your position. These proceeds are at your disposal and can be re-invested.

That’s how Maryam increases her cash flow since July 2020. She runs a scrap metal business where she finds scrap aluminum herself and physically turns it in. Hedging with metal futures is something she was already familiar with, but she wanted to establish something similar in the technology sector.

I introduced her to the idea of building up cash reserves with futures so she can plow the proceeds back into a portfolio of tech stocks. She re-invests this settled cash back into stocks to grow her portfolio. It has now become a neat enrichment engine running passively on the side.

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About Matthias Hagemann

Matt Hagemann

I share my 15+ years of trend following experience. Aspiring traders come to me because they want to make consistent profits without stress and without day-trading.