The NASDAQ Stock Market is an American stock exchange designed to allow investors to buy and sell stocks through an automatic, transparent, and high-speed computer network. Also known as “NASDAQ” (National Association of Securities Dealers Automated Quotations), the exchange's founding in 1971 represented a new way for investors to trade without making it personal – a method that, according to the National Association of Securities Dealers (NASD ) was a burden. . investors with inefficient trading and delays.
Composition of NASDAQ
More than 3,300 companies now trade publicly on the NASDAQ stock exchange, and that's itsecond largest fairin the form of securities values and the largest electronic stock market. NASDAQ trades stocks in several types of companies – including capital goods, consumer durables and non-durables, energy, financial services, healthcare, utilities, technology andtransport– but it is known for its high-tech stocks.
Key takeaway
NASDAQ is the second largest securities exchange in the world.
To list on the NASDAQ National Market (NASDAQ-NM), companies must meet specific financial criteria. They must maintain a share price of at least $1 and the value of shares outstanding must be at least $1.1 million. For smaller companies that cannot meet the financial requirements, the NASDAQ Small Caps Market is available. NASDAQ will move companies from market to market as eligibility changes.[Learn howmanage your company's finances.]
Trading on NASDAQ
Because it is an electronic exchange, NASDAQ does not offer a trading floor. The stock exchange itself is a dealer market, i.e. brokersbuy and sell sharesvia a market maker instead of directly from each other. A market maker handles a certain stock and has a certain number of shares on his or her books. When a broker wants to buy shares, he or she does so directly from the market maker.
When NASDAQ first started, stock trading was done via a computer bulletin board system and over the telephone. Now, trading on NASDAQ is done using automated trading systems that make offerscomplete financial reportson transactions and daily trading volumes. Automated trading also provides automatic execution of trades based on parameters set by the trader.
Listing fees on NASDAQ are significantly lower than other stock markets, with a maximum price of $150,000. This low fee makes it possible to trade many new, fast-growing and volatile stocks.
Although the New York Stock Exchange (NYSE) is still considered a major exchange because its market capitalization is much higher, the NASDAQ has a greater trading volume than any other US stock exchange - with approximately 1.8 billion trades per day.
Without a trading floor, NASDAQ built the NASDAQ MarketSite in Times Square in Manhattan to create a tangible physical presence. The large electronic display outside provides up-to-date financial information about the tower 24/7. Trading takes place Monday through Friday at 9:30 AM to 4:00 PM Eastern Time, excluding major holidays.
How to Trade NASDAQ Stocks
While there are many nuances to how NASDAQ works behind the scenes, it is very simple for investors who want to trade stocks on NASDAQ. Stocks traded on the NASDAQ are freely available for trading on any major stock trading platform, just like the stocks traded on the NYSE.
To trade stocks listed on the NASDAQ stock exchange, an investor simply needs to open a brokerage account on a platform such as E-Trade or TD Ameritrade, fund the account, find the securities he wants to trade and place an order to place.
In fact, most major trading platforms allow commission-free trading for stocks listed on the NASDAQ - just as they do for stocks trading on the NYSE.
Popular NASDAQ Indices
Like any stock exchange, NASDAQ uses indexes, a collection of sector-specific stocks. The indices can be used to provide a snapshot of current market performance. Just like the NYSE offersDow Jones Industrial Average (DJIA)as its primary index, NASDAQ offers the NASDAQ Composite and the NASDAQ 100.
OfNASDAQ composite indexmeasures the change in more than 3,000 stocks traded on the NASDAQ, while the DJIA measures the highs and lows of 30 major companies. The NASDAQ Composite is often referred to simply as "NASDAQ" and is the index most often cited by financial journalists and journalists.
OfNASDAQ100is a custom, capitalization-weighted index consisting of the 100 largest companies by market capitalization traded on NASDAQ. These companies cover a variety of market sectors, although the largest are typically technology-related. Companies can be added to and removed from the NASDAQ 100 each year, depending on their market capitalization.
Both the NASDAQ Composite and the NASDAQ 100 include U.S. companies and companies outside the country. This differs from other major indices because the DJIA currently consists of only US companies.
The history of NASDAQ
The NASDAQ, founded by the NASD, opened on February 8, 1971. The world's first electronic stock market began trading more than 2,500 over-the-counter securities. At the time, NASDAQ was a computer bulletin board system. Initially, no actual trade took place between buyers and sellers. Instead, NASDAQ has leveled the playing field for traders by narrowing the spread between the bid price and the offer price of stocks.
Thanks to its tech-heavy nature, the NASDAQ Composite took a big hit after the dot-com bubble burst in the late 1990s, falling from over 5,000 to under 1,200. Here are some other notable dates on the NASDAQ timeline:
1975:NASDAQ invented the modern initial public offering (IPO) by listing companies with venture capital. This allows guarantee syndicates to act as market makers.
1985:NASDAQ creates the NASDAQ-100 index.
1996:The first trade fair website goes live: www.nasdaq.com.
1998:NASDAQ merges with the American Stock Exchange to form the NASDAQ-AMEX Market Group. AMEX was later acquired by NYSE Euronext in 2008 and its data was integrated into NYSE.
2000:NASDAQ members vote to restructure and spin off NASDAQ into a publicly traded for-profit company: NASDAQ Stock Market Inc.
2007:NASDAQ acquires OMX, a Swedish-Finnish financial company, and changes its name to NASDAQ OMX Group. NASDAQ OMX acquires the Boston Stock Exchange.
2008:NASDAQ OMX acquires the Philadelphia Stock Exchange, the oldest stock exchange in the United States.
2009:NASDAQ OMX creates a mobile version of nasdaq.com, an industry first.
Did you know?
Due to NASDAQ's heavy technology component, stock indices were hit much harder when the dot-com bubble burst in 1999/2000.
Why NASDAQ is important
The NASDAQ stock exchange is important because it was the first exchange to offer investors the opportunity to trade stocks transparently through an automated system. Today, NASDAQ automated trading has become common among other exchanges, but NASDAQ remains unique for its focus on high-tech companies.
NASDAQ is also important because it is relatively easier for companies to list on this exchange than others such as the NYSE. This way, more companies are listed so that investors can buy and sell their shares.
Finally, the NASDAQ stock exchange offers investors a way to invest in much more volatile securities with potentially higher growth than other exchanges that offer more stable, conservative companies.
Dock David Treece contributed to the writing and reporting of this article.
