What is Nasdaq?

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.
 

How Does Nasdaq Traing System Works?

Nasdaq runs on a high-tech, fully electronic system. No shouting brokers or crowded floors here, just fast computers and smart code. Here’s the breakdown:

• Investors and traders send in their buy or sell orders.
• Market makers, special firms that keep things moving, constantly offer prices to buy or sell.
• Electronic Communication Networks (ECNs) help match orders almost instantly.

Thanks to this digital setup, trading is lightning-fast, super transparent, and even available during pre-market and after-hours sessions.
 

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.
 

Is Nasdaq Based in the U.S.?

Yes, Nasdaq is based in the United States. Nasdaq is headquartered in New York City, with its data centers in New Jersey. But even though it's American-born, its reach is global. Nasdaq powers exchanges and delivers market tech all over the world.
 

What is Nasdaq 100?

The Nasdaq-100 is a stock market index that includes the 100 largest non-financial companies listed on the Nasdaq exchange. It features leaders from sectors like technology, healthcare, and consumer services. Top companies include:

Apple
Microsoft
Nvidia
Amazon
Meta (Facebook)

Investors often use the Nasdaq-100 as a benchmark for the tech sector or to invest in growth-driven companies through ETFs like Invesco QQQ.
 

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.