When it comes to investors wishing to buy and sell shares of stock, the Nasdaq Stock Market, more commonly referred to as just Nasdaq, is the world’s second-largest stock market after the New York Stock Exchange (NYSE).
NASDAQ, which is an abbreviation that stands for National Association of Securities Dealers Automated Quotations, was the original form of the name Nasdaq. It began operations in 1971 and offered investors controlled access to information regarding stock prices, which they could use in order to trade equities on other exchanges.
When it was all said and done, the Nasdaq became the first online stock market on the planet. It did this by assuming control of the trading of a great number of equities that had historically been traded on venues other than conventional stock exchanges.
Official listing standards have recently been implemented by Nasdaq in order for companies to have the opportunity to list their stock on the Nasdaq stock market. The Nasdaq Stock Market is now the largest stock exchange in the world that only trades through computers.
The Nasdaq is home to the stock listings of more than 3,700 different companies, including a significant number of the world’s largest corporations. Since Nasdaq embraces technical innovation in its trading platform, it has lured many of the largest technology companies and organizations into other new areas.
Some of the entities whose shares are traded on the Nasdaq are as follows: Amazon (AMZN), Apple (AAPL), Intel (INTC), Adobe (ADBE), Microsoft (MSFT), Facebook (FB), and more.
The traditional model of stock markets, which includes having active traders on a trading floor to receive and execute transactions to buy and sell shares of stock, was the inspiration for the creation of the Nasdaq, which was designed to offer a digital solution to this model.
Despite this, Nasdaq originally did not have any traders exchanging stocks directly with one another. Instead, it relied on a computerized system that gathered information in order to provide the most recent stock values for transactions that were carried out elsewhere.
From that point on, Nasdaq became heavily engaged in the trading of stocks that weren’t already included on the New York Stock Exchange or any other of the stock markets. Over-the-counter stocks were Nasdaq’s initial priority, and some traders still call it an OTC market.
The Nasdaq has developed electronic trading methods to keep up with the rapid pace of technological advancement. These systems not only process orders from market participants but also offer the basic data and information that are mandated for all stock exchanges. The Nasdaq was the first stock market to have its own website, and it was also the first market that permitted online trading after the internet became widely available.
Nasdaq Work Hours
Every work day, the Nasdaq Stock Market is open, and during the weekend it is closed. Trading on the Nasdaq starts at 9:30 a.m. Eastern Time. The ordinary session ends at 4 p.m. Eastern time when the last bell is rung. It also closes during the following holidays:
(Holidays during which the Nasdaq is closed. Source: The Motley Fool)
Trading On The Nasdaq
The NASDAQ does not have a physical trading floor due to the fact that it is an electronic exchange. Because the exchange is a dealers’ market in and of itself, brokers must go through market makers in order to purchase and sell equities instead of transacting directly with one another.
A market maker is someone who trades in a particular stock and has a specified quantity of that stock in his or her ledger. When a broker is interested in purchasing shares, the transaction takes place solely with the market maker.
Before the NASDAQ was established, stock trading was handled over a computerized bulletin board network and over the phone. Automated trading systems are now used for all transactions and these systems provide comprehensive financial information on all transactions as well as daily exchange volumes.
Trading now almost exclusively takes place over the Internet, and only a small minority of stock exchanges continue to operate physical trading floors of any type. One of the consequences of the Covid-19 outbreak that has received less attention is that it has led to the shutdown of the few physical trading floors that were left.
In addition, automated trading allows for the transactions to be automatically executed based on the specifications that the trader has selected. Moreover, the maximum NASDAQ listing fee is $150,000, much cheaper than other stock marketplaces. This low cost allows the trading of young, volatile equities.
Whereas the NYSE has a larger market capitalization, the Nasdaq has a higher trading volume. Without a trading floor, Nasdaq established a physical presence in Times Square, where a big external electronic display shows the tower’s finances. Now it is a popular tourist attraction for people visiting New York.
(Nasdaq in New York. Source: CNBC)
How To Trade On Nasdaq
Traders who want to invest in stocks on the NASDAQ will find that the process is fairly straightforward, despite the fact that the NASDAQ’s inner workings include a great deal of complexity. Similar to the stocks that trade on the New York Stock Exchange (NYSE), those listed on the NASDAQ are openly tradeable on all of the main stock trading platforms.
To start trading NASDAQ stocks, investors must set up a trading account on E-Trade or TD Ameritrade, finance it, choose and then place orders. Furthermore, the majority of the main trading platforms provide commission-free transactions for equities that are traded on the NASDAQ, just as they do for stocks that are traded on the NYSE.
Why Is The Nasdaq Important?
What makes the Nasdaq noteworthy is that it was the first exchange that provided traders with the opportunity to trade equities in a fair manner using an automated system. The NASDAQ was the first market to use an automated trading system, which has since spread to other markets. However, the NASDAQ is still different from other exchanges because it focuses on high-tech businesses.
Another reason why the NASDAQ is so essential is the ease with which corporations can list their stocks on this particular exchange in comparison to others, like the New York Stock Exchange (NYSE). This allows more companies to become openly listed, which allows investors to trade the companies’ shares more easily.
Listing On Nasdaq
Before a company may become listed on the NASDAQ, it must first satisfy a number of criteria. The following requirements need to be met in order for a company’s stocks to be traded on the Nasdaq exchange:
First and foremost, the company needs to be registered with the Securities Exchange Commission (SEC), and it needs to have a minimum of three market makers. In addition to this, it should fulfill specific requirements with regard to its financial state, liquidity, and overall corporate governance.
Moreover, it needs to fulfill other standards dependent on the size of the company and the number of trades it performs. After an application has been submitted, the approval process for the company’s listing could take anywhere from weeks to months.
There is an index for the local stock market called the Nasdaq-100. This index is comprised of the top one hundred or so stocks that are traded on the Nasdaq exchange and do not participate in the banking industry. Moreover, the bigger stocks make up a greater share of the index than the smaller stocks do.
However, as of the beginning of June 2022, the top three spots in the index were held by Apple, Microsoft, and Amazon, and they accounted for almost 30% of the total index value. Distributions are subject to vary due to the fluctuating value of the companies included in this index.
And over half of the funds in the Nasdaq-100 are invested in the technology sector, which may not come as much of a surprise considering that the exchange has a long reputation for innovation and has been successful in luring companies from Silicon Valley.
Nasdaq Vs. NYSE
Although the New York Stock Exchange and the Nasdaq together account for a significant share of stock trading in the United States, there are several key differences between the two marketplaces.
Due to internet trading, an exchange’s address relates to where its transactions are executed, not its physical address. While the NYSE still has a physical trading floor on Wall Street, much of its trade goes throughout its data center.
In contrast, there is no trading floor on the Nasdaq. Investors who want to buy or sell are able to do so instantly at both data centers. A centralized exchange infrastructure facilitates trading between market parties.
Distinctions in how securities are traded between investors on both exchanges are at the heart of their differences. The NYSE is unique in that it uses the auction technique to fix stock values at market hours and closure.
Both Nasdaq and the NYSE use market makers to increase liquidity, which helps to ensure a stable and positive market on both exchanges. Nevertheless, the way in which these specialists perform their jobs varies from one exchange to the next.
With this, the listing conditions for Nasdaq are more welcoming to newly established businesses. It is easy to understand why growth firms with less startup investment could find the Nasdaq to be a more appealing option given the reduced entry requirements.
The Nasdaq is extremely vulnerable to tech stock falls and has undergone major losses. The Nasdaq needed 15 years to hit record highs and 17 with inflation to recover fully. The wider share market recovered and reached new highs in less time.
Both exchanges are very different from one another, despite the fact that the New York Stock Exchange (NYSE) and the Nasdaq are the two largest stock markets in the world.
If you understand how these exchanges work, you will have a better idea of how transactions are made and how a market works, even if the differences between them don’t affect the stocks you choose to invest in.
Frequently Asked Questions (FAQ)
How Do I Invest In The Nasdaq?
The Invesco QQQ Trust (QQQ) exchange-traded fund is one of the most well-known and long-standing investment options available. This exchange-traded fund (ETF) has been actively trading since the 90s and is compared to the Nasdaq-100 Index, despite the fact that Nasdaq is not included in the name of the fund.
How Do Stocks Get Listed On The Nasdaq?
A corporation must meet a number of criteria and economic requirements before launching on a Nasdaq market or to prevent delisting, such as market cap, profitability and revenue data, etc. Nasdaq’s website explains its specifications and approach.
What Is The Nasdaq Exchange?
When it comes to traders interested in purchasing and selling stocks, the Nasdaq Stock Market, more commonly referred to as just Nasdaq, is the world’s second-largest stock exchange. Nasdaq was originally an abbreviation that stood for the National Association of Securities Dealers Automated Quotations.
- The Nasdaq Stock Market, more commonly referred to as just Nasdaq, is the world’s second-largest stock market after the New York Stock Exchange (NYSE).
- The Nasdaq has developed electronic trading methods to keep up with the rapid pace of technological advancement.
- Nasdaq was originally an abbreviation that stood for the National Association of Securities Dealers Automated Quotations.
- Over-the-counter stocks were Nasdaq’s initial priority, and some traders still call it an OTC market.
- Before the NASDAQ was established, stock trading was handled over a computerized bulletin board network and over the phone.
- Whereas the NYSE has a larger market capitalization, the NASDAQ has a higher trading volume.
- Similar to stocks that trade on the NYSE, those listed on the NASDAQ are openly tradeable on all of the main stock trading platforms.
- A corporation must meet a number of criteria and economic requirements before launching on a Nasdaq market or to prevent delisting.
- Although the NYSE and the Nasdaq together account for a significant share of stock trading in the US, there are several key differences between the two marketplaces.