What is Nasdaq?
5paisa Research Team
Last Updated: 10 Oct, 2024 06:57 PM IST
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Content
- What is Nasdaq?
- NASDAQ History
- How Does Nasdaq Work?
- A Tech Behemoth
- The inner workings
- How to list scrips on Nasdaq?
- What is the Nasdaq Composite Index, and how to invest in it?
- How to invest in Nasdaq from India?
- Conclusion
Nasdaq is a global electronic marketplace where stocks and other securities are bought and sold. Known for its technology focused listings, it includes many of the world's largest tech companies like Apple and Amazon. Nasdaq operates as an index tracking the performance of its listed companies providing investors with insights into the tech sector's health. It plays a vital role in the global economy, influencing market trends and investment strategies. In this article we will cover what is Nasdaq in stock market and related questions.
What is Nasdaq?
NASDAQ is a key stock market exchange in United States and ranks as the second largest exchange globally by market capitalization. The acronym NASDAQ stands for National Association of Securities Dealers Automated Quotations. Owned by NASDAQ Inc., it operates not only the NASDAQ exchange but also manages various exchanges in Europe. In addition to its trading platforms, NASDAQ Inc offers services such as SMART which provides market surveillance technology and GlobeNewswire a platform for distributing press releases. NASDAQ is known for its focus on technology and growth oriented companies, making it a vital part of the global financial landscape.
NASDAQ History
NASDAQ was established in 1971 by the National Association of Securities Dealers in New York City as the world’s first electronic stock market. Initially it didn’t allow electronic trading but provided automated stock quotes which helped reduce the difference between buying and selling prices. This feature made it less popular with brokers.
Over time, NASDAQ became the main exchange for most over the counter or OTC trades. In 1998 it became the first exchange to allow online trading. Today, NASDAQ Inc continues to grow its business by focusing on using technology in finance, going beyond just being a stock exchange.
How Does Nasdaq Work?
Nasdaq operates as an electronic, dealer-based market, where trades are executed through a network of market makers instead of a centralised location like the New York Stock Exchange (NYSE). Here's an overview of how Nasdaq works:
1. Electronic trading: Nasdaq was the first exchange to introduce electronic trading, which means that buy and sell orders are matched electronically without the need for physical trading floors. This automated system enables faster and more efficient trade execution.
2. Market makers: In the Nasdaq system, market makers are essential to maintaining liquidity and stability. These are firms or individuals responsible for buying and selling a specific stock at the quoted bid and ask prices. They stand ready to buy or sell shares to ensure smooth trading and to narrow the spread between the bid and ask prices. There can be multiple market makers for a single stock, promoting competition and better pricing.
3. Bid-ask spread: The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) is known as the bid-ask spread. Market makers profit from this spread by buying at the bid price and selling at the ask price.
4. Listing requirements: Companies that wish to list their securities on Nasdaq must meet specific financial and regulatory requirements, such as a minimum number of shareholders, market capitalization, and financial disclosures. These requirements ensure the quality and credibility of the listed companies.
5. Trading hours: Nasdaq is open for trading between 9:30 am and 4:00 pm Eastern Time, with additional pre-market and after-hours trading sessions available for investors.
A Tech Behemoth
Nasdaq is known for attracting some of the biggest and most well known companies especially in the tech world like Apple, Microsoft, Amazon, Tesla, Meta (formerly Facebook) and Starbucks. While it’s famous for tech stocks it also includes companies from other industries. Nasdaq tends to attract large corporations and fast growing companies which makes its stocks more unpredictable compared to other exchanges.
As the second largest stock exchange globally by market value Nasdaq trades not just listed stocks but also many over the counter (OTC) stocks. It has a history of innovation being the first exchange to go electronic, launch a website, sell its technology to other exchanges and use cloud based services.
In 2008, Nasdaq merged with OMX, a company from Stockholm that operates exchanges in Nordic and Baltic regions. The combined company, NASDAQ Inc offers trading in ETFs, bonds, structured products, derivatives and commodities.
The inner workings
Nasdaq was designed to provide automated quotations, which replaced the traditional manual process of matching buy and sell orders. This electronic system streamlined trading and improved the speed and efficiency of transactions. Since its inception, Nasdaq has facilitated OTC trading, allowing companies not listed on traditional exchanges to trade their securities. This feature has made Nasdaq a popular choice for smaller and growth-oriented companies seeking access to capital markets. By combining an electronic trading system with the active participation of market makers, Nasdaq has created a dynamic, transparent, and efficient marketplace for investors and listed companies.
Nasdaq operates as a dealer’s market, meaning trades are handled directly by market makers instead of through auctions. These market makers keep the market liquid by buying and selling, earning profits from the difference between buying and selling prices. Nasdaq’s main trading hours are from 9:30 am to 4 pm EST it also offers pre market and post market trading.
How to list scrips on Nasdaq?
To list a company's securities on Nasdaq, the company must meet the following requirements:
● At least 100,000 shares of public float
● Total assets of $4,000,000
● Shareholder’s equity of at least $2,000,000
● At least two dealers/market makers
● A company's stock must have a minimum bid price of $3 to be listed on the Nasdaq.
● To list on the Nasdaq, a company must have a minimum public float market value of $1,000,000.
● Registered with the Securities Exchange Commission (SEC)
The application process can take up to six weeks for approval. Once approved, the company will be listed in one of Nasdaq's three market tiers: Global Select Market, Global Market, or Capital Market.
Global Select Market: This tier includes large companies from both the US and other countries. To be listed here companies must meet Nasdaq’s strict requirements. Some companies in the Global Market can move up to the Global Select Market if they qualify during an annual review.
Global Market: This is a mid size company tier including stocks from the US and around the world.
Capital Market: Previously known as the SmallCap Market, this tier includes companies with smaller market capitalizations.
Indian companies listed on Nasdaq include MakeMyTrip, Rediff.com India, Yatra Online Inc, Sify Technologies, Azure Power Global and Freshworks.
What is the Nasdaq Composite Index, and how to invest in it?
The Nasdaq Composite Index is a stock market index that includes the majority of stocks listed on the Nasdaq stock exchange. It covers a broad range of industries, but it is particularly known for its focus on technology companies like Apple, Amazon, and Microsoft. The index tracks the performance of over 3,000 stocks, giving investors an idea of how well the overall Nasdaq market is doing. Here’s what you need to know to be included:
- The stock must only be traded on the Nasdaq exchange.
- It must be a regular stock of a single company, so things like ETFs or other investment products aren’t allowed.
- Stocks like American depositary receipts (ADRs), real estate investment trusts (REITs), and shares of limited partnerships can also be part of the index.
The best way to invest in the Nasdaq Composite Index is through an index fund, which is a type of mutual fund that follows the performance of this index.
How to invest in Nasdaq from India?
Now you understand what Nasdaq index is, let’s explore how to invest in it. Indian investors can invest in Nasdaq listed stocks in two ways:
● Through Mutual funds: Many Indian mutual funds invest in US stocks, including those listed on Nasdaq. Investors can research and select mutual funds that offer exposure to these stocks. Keep in mind that these funds may charge a management fee for their services.
● Direct investment in US stocks: Some Indian brokers have tie-ups with US-based brokers that can facilitate direct investment in Nasdaq-listed stocks. Investors can also open a trading account with an overseas broker to access the US markets directly. Numerous platforms offer this service, making it easier than ever for Indian investors to participate in the global markets.
Conclusion
Nasdaq is a stock exchange known for being the first to use electronic systems for trading, which changed how stock markets work. It stands for National Association of Securities Dealers Automated Quotations. Unlike traditional exchanges it focuses on listing technology and growth driven companies which makes it popular for tech giants and innovative businesses.
Nasdaq’s electronic trading system helps create a fast, transparent and efficient platform for both investors and companies. This system is supported by market makers professionals who help ensure smooth trading by buying and selling stocks. Nasdaq is the second largest stock exchange in the world and understanding how it works can help investors see the huge potential it offers especially in the tech sector.
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Frequently Asked Questions
NASDAQ trading hours are from 9:30 am to 4:00 pm Eastern Time, Monday through Friday. Additionally, pre-market and after-hours trading sessions are available for investors who wish to trade outside regular hours.
The primary difference between the National Stock Exchange (NSE) of India and Nasdaq is their location and listed companies. NSE is based in India and lists Indian companies, while Nasdaq is based in the United States and mainly lists technology and growth-oriented companies from around the world.
The Dow Jones Industrial Average (Dow) is a price-weighted stock market index that tracks 30 large, established US companies. Nasdaq, on the other hand, is a stock exchange that lists a broader range of companies, with a focus on technology and growth-oriented firms. The Nasdaq Composite Index is a market-capitalization-weighted index that tracks the performance of all companies listed on the Nasdaq exchange.
Nifty, the index representing the National Stock Exchange (NSE) of India, is not directly dependent on Nasdaq. However, global market trends, including those from Nasdaq, can influence investor sentiment and impact the performance of Indian stocks and indices like Nifty.
No, you cannot buy shares on the Bombay Stock Exchange (BSE) and sell them on Nasdaq. Shares listed on BSE are traded only on that exchange, and shares listed on Nasdaq are traded exclusively on Nasdaq. To trade shares on different exchanges, you must buy and sell them separately through brokers who have access to those specific markets.
Yes, Nasdaq is a stock exchange based in the United States, located in New York City. It began operations in February 1971 and was the world's first fully electronic exchange. Today, over 5,000 companies both U.S based and international are listed on Nasdaq.
Nasdaq 100 is a stock market index that tracks the performance of 100 of the largest non financial companies both U.S based and international listed on Nasdaq exchange. It focuses on large cap growth companies ranked by their market capitalization.
Apple is listed on Nasdaq under the ticker symbol AAPL. The company made its initial public offering (IPO) on 12 December 1980 with shares initially priced at $22.
Nasdaq is home to a wide variety of companies especially in the tech sector. You’ll find big names like Apple, Amazon and Google but there are also companies from sectors like healthcare and finance. Nasdaq tends to attract innovative and fast growing companies making it a popular choice for investors interested in the latest trends.