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If you’re watching financial news or installing 401(k), you’ve probably heard of Nasdaq. Nasdaq is the world’s second largest stock exchange, second only to the New York Stock Exchange (NYSE), and home to tech giants like Apple, Google and Amazon.
Since its launch in 1971, the Nasdaq exchange has grown to more than 4,000 business listings, including many of today’s largest companies. As the value of these companies rises and falls with the economy, so does the value of any portfolio listed on the Nasdaq exchange.
“Nasdaq has always been an electronic exchange, looking to the future of capital,” said Carol Schleif, deputy chief investment officer of BMO Family Office, an asset manager. “Nasdaq has a reputation for being innovative, which is why so many tech stocks are on the list there.”
But what exactly is the Nasdaq and how does it work? Let’s take a look at one of the most recognized exchanges.
What is NASDAQ?
The term Nasdaq is the original acronym for the National Association of Securities Dealers Automated Quotation. Its name goes back to its beginnings, when it was founded by the National Association of Securities Dealers (NASD), a forerunner of the Financial Industry Regulatory Authority (FINRA).
In 2006, the Nasdaq split from the NASD and became a separate entity. The following year, in 2007, Nasdaq announced it would combine with the OMX Nordic Exchange to become Nasdaq OMX.
After the New York Stock Exchange (NYSE), Nasdaq made history when it introduced the idea of an electronic stock exchange in 1971. Its reputation lives on as one of the most well-known stock exchanges in the United States, according to Joseph Hogue, CFA, an investment analyst and founder of the YouTube channel for investment education. Let’s talk about money†
“Nasdaq was the first electronic exchange,” Hogue says. “It allowed investors to buy and sell stocks through an automated system, as opposed to the physical trading floor on the NYSE”
Today, much of the trading on the NYSE also takes place electronically, Hogue points out. The two popular exchanges have many similarities in operation. The NYSE still adheres to a hybrid model and, except during the COVID-19 shutdown, still uses floor traders for some of its trades. And while Nasdaq is known for its electronic commerce, it has a physical headquarters in New York City and nearly 40 offices around the world.
Nasdaq provides access to several markets, including three different market tiers: The Nasdaq Global Select Market®, The Nasdaq Global Market®, and The Nasdaq Capital Market®
Each of Nasdaq’s market tiers comes with different listing requirements. Companies and closed-end funds can list themselves for trading on the Nasdaq exchange, as long as they meet the listing requirements and pay the applicable fees.
In addition to the stock exchange, where stocks are listed and can be traded, it is possible to get an idea of the value of the Nasdaq by looking at the Nasdaq Composite. The Nasdaq Composite is an index of all publicly traded companies (approximately 4,000), and it provides a measure of a segment of the stock market.
“The NYSE has slightly higher listing requirements and higher fees, so smaller companies generally prefer to list on the Nasdaq first,” Hogue said.
Schleif also points out that startups and tech companies generally find it easier to get started on the Nasdaq. Now well-known companies such as Apple (AAPL), Alphabet Inc, the parent company of Google (GOOG) and Amazon (AMZN) have started – and are still listed – on the Nasdaq exchange.
The Nasdaq Trading Platform
The idea behind the launch of the Nasdaq trading platform was to provide a fair and efficient screen-based securities market. Over the years, says Schleif, Nasdaq has been at the forefront of market innovation and has built a reputation for driving capital markets forward.
Trading on the Nasdaq is very similar to trading on the NYSE, according to Hogue.
“If you place an order to buy or sell a stock, it goes through a broker,” Hogue says. “That is someone with a seat on the physical exchange or a computer connected to the exchange system.”
Ordinary people don’t get direct access to the Nasdaq – or any stock exchange. When you trade stocks online, Hogue points out, you do so through an intermediary. You can use an account with Robinhood, Fidelity, TD Ameritrade or any other broker you find online. Wherever you go, however, you will need an attendant to arrange the transaction.
As long as you know the ticker symbol, you can trade a stock, whether it’s listed on the Nasdaq or the NYSE.
Once you’ve decided which stock to buy or sell, Hogue explains, the broker enters your trade with the exchange and matches buy and sell orders at the best price for each. When you do this online, it happens quickly, in a matter of seconds.
“Some stocks are listed on the NYSE, while others are listed on the Nasdaq, so investors don’t really have a choice of which exchange is used by the broker,” Hogue says. “Most brokers have access to both, so it’s about which company you’re interested in, not which exchange you want to use.”
Recent History of Nasdaq
Currently, the Nasdaq Composite is above 14,000. However, prior to the recent buildup after the 2008 financial crisis, the Nasdaq peaked above 5,000 for the first time in March 2000. That was the year of the dot-com bust, Schleif points out, and the tech-heavy Nasdaq Composite plummeted. shortly after.
“Rebuilding that index has been a long process,” she says. “But since then, even some older NYSE companies have left and moved to Nasdaq, just because of that innovative aura that comes from a listing on the Nasdaq.”
Aside from that, there are some other events in Nasdaq’s recent history that have drawn attention:
Nasdaq OMX joined the United Nations Sustainable Stock Exchanges initiative in 2012. The first woman to lead a major exchange in the United States, Adena Friedman became CEO in 2016. She started as an intern at Nasdaq. Nasdaq issued new listing rules regarding board diversity, requiring companies to include multiple directors by 2020.
Nasdaq is an exchange where companies can offer shares of their stocks. Investors access these exchanges through brokers and can buy and sell company shares. Nasdaq is known for its innovation and claims the accolade of being the world’s first electronic stock exchange. Today, many of the world’s top companies are listed on the Nasdaq, and it is possible for you to buy and sell shares of those companies.