What is the NASDAQ?
What does NASDAQ Stand For?
NASDAQ stands for National Association of Securities Dealers Automated Quotations.
When it was first introduced in 1971, the purpose of the NASDAQ was to make stock trading faster and more accessible by using a computerized system.
For younger companies (often startup technology companies), listing on the NASDAQ was a way to raise capital and grow more quickly than they would on the New York Stock Exchange.
Why Another Stock Market?
This new model was appealing because after all, the reason companies go public on the stock market in the first place is to raise capital to put back into their business.
The NASDAQ promotes this growth by driving competition in the stock market.
The Components of the NASDAQ
The NASDAQ has two components: it’s a trading platform and an index.
The first component of the NASDAQ, the trading platform, uses a matching system to match the desired prices of buyers and sellers to make trades.
For example, if there is a buyer willing to buy 50 shares of Apple at $295 per share and a seller that is willing to sell for that price, the NASDAQ matching engine executes the trade.
The second component of the NASDAQ, the index, is called the “NASDAQ composite” which is a benchmark index like the Dow Jones Industrial Average or the S&P 500.
The purpose of the NASDAQ Composite is to represent the overall performance of the exchange.
The NASDAQ uses many different types of securities in its calculation, including all the NASDAQ-listed stocks, the majority of which are in the technology industry.
In general the NASDAQ is perceived as the go-to-market for technology companies, being the home of Apple, Facebook, and Amazon.
Alternatives to NASDAQ
The NASDAQ and the New York Stock Exchange accommodate a majority of all equities trading in North America.
Until NASDAQ came onto the scene, traders had to go to the New York Stock Exchange’s trading floor on Wall Street in order to buy and sell.
While the New York Stock Exchange relies on face-to-face interactions between traders in an auction-style format, the NASDAQ lets buyers and sellers worldwide trade through a broker.