What Is the NASDAQ Stock Exchange?

Written by Parker PopeUpdated: 16th Jul 2021
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Stock market exchanges are critical to the financial system. 

They ensure buyers and sellers have a convenient and safe place to come together to exchange financial instruments, and the US exchanges offer the highest liquidity in the global market.

Let’s discuss one of these and give you all of the details you might need to understand how your investments are affected by exchanges.

What Is the NASDAQ?

The NASDAQ is one of the largest stock exchanges in the world. 

It is, in fact, an acronym that stands for the National Association of Securities Dealers Automated Quotations. 

Specifically, it is the second-largest in the world behind the New York Stock Exchange(NYSE). 

It was actually the first completely digital exchange, meaning traders don’t meet on a trading floor to exchange assets – it all happens electronically.

How the NASDAQ Works

While most exchanges were founded on bringing people physically together to trade, the NASDAQ was established to facilitate the next generation of trading stocks and other financial assets.

The exchange itself is not the same thing as the NASDAQ composite, which we’ll get into in a bit. 

Trading on the NASDAQ is one of the highest in the world, with over two billion shares trading every day.

Nasdaq Trading Hours

The NASDAQ hours are generally the same as the NYSE – between 9:30 AM and 4:00 PM. 

However, being completely digital, the NASDAQ offers both pre-and post-market trading outside of normal hours starting from 4:00 AM until open and from close until 8:00 PM.  All of these are Eastern Time.

Nasdaq Listing Requirements

For a company’s stock to be listed on the NASDAQ, there are several requirements the company needs to meet.

  • Must be registered with the Securities and Exchange Commission (SEC)
  • Have at least three market makers to facilitate the trading of the stock
  • Meet financial and other requirements, such as the minimum net annual income of $750,000 for the lowest tier.

There are also three tiers for each company: Nasdaq Capital market, Nasdaq Global Market, and Nasdaq Global Select Market. 

Each tier has different financial and liquidity requirements as well as initial listing fees and annual membership fees.

Nasdaq Capital Market

Being able to list your company stock on the Nasdaq is already an impressive feat, so calling the Nasdaq Capital Market the “lowest tier” seems a bit ingenuous. 

Companies that meet this tier are generally young, up-and-coming companies trying to raise capital for growth. 

While the liquidity may be lower, bundling growing companies into this tier gives prospective investors a good idea of the company’s goals. 

Companies must have at least 1 million publicly traded shares.

Nasdaq Global Market

The Nasdaq Global Market has stricter requirements than the Capital market, but these companies tend to be more established with international reach.

The minimum number of shares for this tier is 1.1 million. Companies must have a market value of at least $75 million.

Nasdaq Global Select Market

The Global Select Market is the highest tier in the Nasdaq and requires at least 1.25 million publicly traded shares. 

The minimum market capitalization for this tier is $160 million, but there are several other very strict financial and liquidity requirements to meet this tier.

History of the NASDAQ Stock Exchange

Originally launched in 1971, Nasdaq was originally created to allow Over-The-Counter (OTC) companies to gain exposure in their own exchange. 

OTC companies were typically too low or undervalued to me the requirements of the NYSE or other exchanges.

This gave rise to the Nasdaq fostering new and innovative companies like Microsoft and Apple, which are now some of the most valuable companies in history.

Nasdaq merged in 2007 with a Swedish exchange called OMX ABO, which was focused on regional stock listings in Scandinavia and Baltic countries. 

The merger created what is now the largest exchange in the world.

Two Major NADAQ Indexes

  • NASDAQ Composite Index: There are more than 3,000 stocks listed on the NASDAQ composite, and many of them began as what many thought would be passing fancies – stocks like Spotify, Facebook, Apple, Microsoft, Netflix, Google, and Amazon. These stocks are more focused on the tech sector. Hence the close correlation the tech sector has with the performance of the NASDAQ composite.
  • NASDAQ 100: As the name suggests, this index comprises the largest non-financial stocks listed on the Nasdaq. While you might think this just means the world’s largest tech stocks, the Nasdaq 100 includes companies like PepsiCo and Amgen (biotech).

How to Invest in NASDAQ Stocks

As the second-largest exchange on the planet, any company that calls itself a brokerage or investment firm should be offering you access to stocks listed on the Nasdaq. 

That being said, you can invest in Nasdaq stocks in every possible way stocks can be traded, including the stocks listed on the exchange, either of the two major indices, ETFs and mutual funds that mimic the Nasdaq, and options or futures contracts, which are derivatives of the others.

Nasdaq, Inc. itself is a publicly-traded company. You can buy and sell ticker symbol NDAQ on – you guessed it – the Nasdaq.

Nasdaq vs. NYSE

The Nasdaq benefited from providing a way for up-and-coming companies to be listed on an exchange. It has left a massive footprint ever since. 

There is more volatility partly because of the nature of the listed companies and partly because of the tech-focus of the companies.

The NYSE obviously has the benefit of being the oldest existing exchange in the US. As such, there are more sectors represented, though there are fewer companies. 

With a broader market representation comes less volatility. It also still maintains its famous trading floor on Wall Street to facilitate direct trades.

>> Learn More:Differences Between the NYSE and NASDAQ

Nasdaq vs. Dow Jones: What Is the Difference Between Dow Jones and NASDAQ?

The Nasdaq is many things. It can be the exchange where companies list their stocks to be bought and sold more easily, or it can be the index representing a strong correlation with the tech sector.

Referring to the latter definition, the Nasdaq and the Dow Jones are indexes that convey information about large, publicly traded companies. 

The Nasdaq represents an enormous 3,300 companies, most of which are either newer, tech-focused, or both. 

While several of the largest companies in the world may be listed on the composite, many are far newer and more volatile than those that are found on the Dow Jones.

The Dow Jones is an index of only 30 companies, though several of these companies, such as Apple, are included in both the Nasdaq index and the Dow Jones Industrial Average

The Dow, as it is sometimes called, has so few companies because it was meant to give an indication of the performance of the 30 largest and most stable companies in the US stock market.

Bottom Line: What Is the NASDAQ?

The Nasdaq is an exchange where companies can list their stocks to facilitate easier buying and selling of shares and raise capital. 

Many of the companies are tech-focused due to the Nasdaq being the first all-electronic exchange globally, and several of the top companies also happen to be the largest companies in the world.

The Nasdaq is also an index of over 3,300 companies. You might find the Dow Jones, S&P 500, and Nasdaq listed on your favorite business news channel, so give a picture of what the market as a whole is doing on that particular day.

In either case, the Nasdaq is a powerful tool for any investor and can be added to an investor’s portfolio in many different ways.

Parker Pope
Parker Pope

Parker has spent over 10 years studying the financial markets. He currently manages his own portfolios by trading options and futures, and he’s excited to share his experience with those interested in a hands-on approach to their investments. No fancy tricks or indicators, just a commitment to understanding risk management and knowing the “why.” While he invests actively, he’s built a wealth of knowledge about personal finance and commits his efforts to writing about topics to help people take control of their finances. Parker’s areas of expertise are financial markets and investing.