What is Nasdaq?

The Nasdaq is the second-largest stock exchange in the world. Nasdaq, which is an acronym for National Association of Securities Dealers Automatic Quotation System, was established in 1971.

 

The US-based exchange is also the first-ever electronic stock market in the world. Back in the day, stock exchanges were physical trading floors, where prices were decided in face-to-face negotiations. Nasdaq changed the way stock exchanges functioned. It had no trading floors and let investors buy and sell stocks on a computerised systems.

More than 3,700 companies are listed including some of the largest technology firms in the world such as Apple, Microsoft, Google, and Amazon. The exchange was created by the National Association of Securities Dealers and is overlooked by the US Securities and Exchange Commission.

 

In colloquial language, when people say ‘Nasdaq’, what they refer to is the index and not the stock exchange. What they refer to is the Nasdaq Composite Index, which, is a statistical measure of a portion of the stock market.

 

Nasdaq also has a ‘Nasdaq 100’ index that tracks 100 of the largest and most actively traded equities on the exchange.

 

The Nasdaq Composite Index— commonly known as just ‘Nasdaq’—is one of the most widely used indices. It tracks the performance of stocks that are traded on the Nasdaq stock exchange. It is one of the most popular stock indices tracked by market participants to represent how the market as a whole is performing.

 

To be listed on the exchange, a stock must be listed exclusively on the Nasdaq stock exchange and be a common stock of a US-based company or be an ADR (American depositary receipt) of a foreign firm. Ordinary shares, stocks of limited partnership interests and tracking equities can also be included in the index.

 

Nasdaq is a known to be a tech-heavy index. As of July 2021, technology firms made up half of the index.

 

Nasdaq Composite is a market-cap-weighted index. This means that each company included in the is weighted based on its total market capitalisation. Therefore, companies with bigger market capitalisations have a relatively more significant impact on the performance of the index than firms with smaller m-caps.

 

NYSE, which is the New York Stock Exchange, is the world’s largest stock exchange based on the total market capitalisation of its listed stocks.

 

The key distinction is that Nasdaq is a dealer’s market, with participants trading through a dealer rather than directly with each other. These dealers maintain stock inventories to buy and sell from their accounts in transactions with customers and other dealers. On the other hand, NYSE is an auction market, which enables investors to transact with each other via designated market makers.

 

While both institutions are based in New York City, the location of transactions for trading on Nasdaq and on the NYSE are different. NYSE retains a physical trading floor and also conducts trades electronically from New Jersey. On the other hand, Nasdaq does not have a physical trading floor.

 

While Nasdaq is a tech-heavy index, NYSE, which was founded in 17,92, is home to many blue chip firms including Walmart and Coca-Cola.

 

The Dow refers to the Dow Jones Industrial Average (DJIA). It is an index just like the Nasdaq Composite and that indicates the performance of overall stock market.

 

The DJIA is not the same as Dow Jones and Company that is owned by News Corp. The index is owned by S&P Dow Jones Indices LLC, a joint venture of S&P Global, CME Group Inc, and News Corp.

 

Started in 1896, DJIA is a price-weighted average of 30 significant equities traded on the NYSE and the Nasdaq.

 

The Standard and Poor’s 500 Index, which is referred to as the S&P 500 index, is one of the most popular indices in the world.

 

It comprises the shares of 500 publicly traded companies in America with the highest values of market capitalisation.

 

This index is calculated using the free-float market capitalisation method. Free-float market capitalisation refers to the value of shares that are available for public trade.

 

Because S&P 500 tracks the prices of large-cap US equities, it is considered a proxy for showing the health of stock market and the economy.