Table of contents
The concept of investing in stocks would have been non-existent without the presence of stock exchanges. Stock exchanges are the pillars of the stock market, which facilitate the exchange of capital between companies and investors.
In today’s article, let’s explore a leading stock exchange – NASDAQ. Let us learn in detail what the NASDAQ stock market is and how it works.
What is NASDAQ?
Headquartered in New York in the United States of America, NASDAQ is one of the largest stock exchanges across the globe. NASDAQ stands for National Association of Securities Dealers Automated Quotations. It ranks number one globally in the list of most active stock exchanges by volume and number two in market capitalisation.
With thousands of companies listed on its platform, NASDAQ is popularly known for providing cutting-edge technology and innovative products, such as indexes, to over 130 markets around the world.
Due to its superior technology, the NASDAQ has leading tech giants, like Google, Microsoft, Apple, etc., listed on its platform.
History
Back in 1939, an association was established under the Securities and Exchange Act of 1934 to oversee the stock market operations. It was called the National Association of Securities Dealers (NASD). It continues to operate today as FINRA – Financial Industry Regulatory Authority. FINRA is a self-regulatory organisation that regulates stock exchanges and brokerages.
In 1971, NASD founded the stock exchange NASAAQ. Initially, NASDAQ was only a platform that showed quotations of stocks traded over the counter. By the 1980s, the NASDAQ grew to become fully operational and the first electronic exchange in the world.
To differentiate itself from other stock exchanges, NASDAQ directed all its focus towards small companies and those in the technology space. By 1981, NASDAQ contributed to 37% of the securities market in the USA and by 1991, the number reached 46%.
How does NASDAQ work?
The NASDAQ works as a dealers’ market, where dealers facilitate trades and create liquidity. These dealers indicate the bid (price to buy the security) and ask (price to sell the security) price for each security, based on which traders can take positions.
The exchange operates on all weekdays, except on the stock market holidays, the list of which will be published in the NASDAQ portal. NASDAQ opens for trading at 9.30 AM and closes at 4 PM EST. It also allows traders pre-market and after-hours trading from 4 AM to 9.30 AM and 4 PM to 8 PM, respectively.
NASDAQ follows stringent rules while allowing companies to list themselves on the exchange to ensure investors’ safety and protection. The exchange has a long list of eligibility requirements, including the company’s revenue, value of assets and liabilities, number of years in business, liquidity factors and more.
What is the NASDAQ index?
The NASDAQ exchange has built various indices that represent the performance of stocks based on different parameters. Two of the most well-known NASDAQ indices are NASDAQ Composite and NASDAQ 100.
NASDAQ Composite is an index that includes almost every stock listed on NASDAQ, with heavy weightage to stocks in the technology sector. It considers domestic and international companies on NASDAQ and all the stocks in the equity segment.
NASDAQ 100 is a narrower index focusing on the top 100 companies in sectors other than finance, listed on NASDAQ based on their market capitalisation.
What is the difference between NASDAQ and NYSE?
The NYSE (New York Stock Exchange) and NASDAQ are two of the largest exchanges in the United States of America and across the globe. Though the two are similar in what they do, they significantly differ in the way they operate.
- The NYSE has a physical trading floor besides electronic trading, while NASDAQ has no physical floor. It entirely works on electronic trading.
- The NYSE is an auction market where traders interact with each other, whereas the NASDAQ is a dealers’ market, where the dealer is an intermediary between traders.
- The NYSE focuses on large blue-chip companies with high market capitalisations, while the NASDAQ focuses on tech-based companies.
Bottomline
The NASDAQ is one of the prime players in the world of stocks. It is a host to thousands of stocks, primarily in the technology sector. The NASDAQ is famous for its technology and electronic trading, besides the large volume and market capitalisation that it caters to.
The exchange is operational between 9.30 AM to 4 PM on all days except weekends and stock market holidays.
FAQs
Dow Jones and NASDAQ Composite are two of the widely used indexes in the US stock market. While Dow Jones indicates the performance of the top 30 stocks listed on the NYSE and NASDAQ, the NASDAQ composite is exclusively for all the stocks listed on the NASDAQ.
Another significant difference among them is the method of weightage. While Dow Jones considers stock prices for assigning weights to stocks, the NASDAQ composite considers the market capitalisation.
Trading on NASDAQ is similar to trading on other exchanges like the New York Stock Exchange.
Investors must first open a brokerage account with a broker who is associated with NASDAQ. Once the trading account is active, investors can place buy and sell orders.
If you want to trade on NASDAQ from India, you can look for mutual funds related to NASDAQ.
Trading the NASDAQ index requires you to invest in the index through an ETF or a mutual fund. Since you cannot invest in the index directly, investing in an ETF or a mutual fund that tracks the index helps you mimic the results of the NASDAQ index.
Yes, NASDAQ has a trading platform. However, there is no physical trading platform. NASDAQ entirely operates on electronic trading.
Yes, NASDAQ is a public company. Besides being a stock exchange, NASDAQ is also a public company that has other businesses, including research and analytics, licensing, developing financial software, etc. The NASDAQ is also listed on its platform as Nasdaq Inc (NDAQ) and is currently trading at $60.03.