Investing overseas has now become an important component of diversifying your portfolio. Investing in US equities is gaining prominence among Indian investors. One such stock exchange in which you can make your investment is the Nasdaq.
What Is Nasdaq?
Do you know that Nasdaq was an acronym for the National Association of Securities Dealers Automated Quotations? We wouldn’t believe you if you said yes.
Nasdaq became the first electronic stock market in the world when it began operations in 1971. It now contains three indices.
- The Nasdaq Composite is the main one and is well known alongside the Dow Jones Industrial Average and the S&P 500.
- The Nasdaq 100 consists of the 100 largest non-financial companies listed on the index. The 100 companies in the Nasdaq 100 make up more than 90% of the weight of the Nasdaq Composite Index.
- The Nasdaq Financial-100 consists of the financial companies that are listed on the Nasdaq.
How are the Nasdaq and NYSE Different?
A lot of you may think that the New York Stock Exchange (NYSE) and the Nasdaq are similar. However, that isn’t the case. The NYSE is the oldest exchange in the US and is the largest equities-based exchange in the world. Both exchanges differ from each other on the following parameters:
- Location: Most exchanges have abandoned the concept of the trading floor, and now trade digitally. However, the NYSE still retains a physical trading floor on Wall Street. A large part of the trade also comes from its New Jersey-based data center. On the other hand, Nasdaq does not have a physical trading floor. It has been trading electronically ever since its inception.
- Dealings: The way securities are traded is the biggest difference between the two exchanges. NYSE is an auction-based market. This means that buyers and sellers enter competitive bids at the same time. The current stock price is a reflection of the highest price a buyer is willing to pay and the lowest a seller is willing to accept.
On the other hand, Nasdaq is a dealer-based market. Here, multiple dealers post prices at which they will buy or sell a specific stock. The dealer here is the market-maker for Nasdaq, someone that actively buys and sells stocks on behalf of the traders.
- Functioning: Traffic controllers determine the functioning of both these markets. In general, traffic controllers connect buyers and sellers, but their roles in the Nasdaq and NYSE are different. As mentioned above, the traffic controller at the Nasdaq, known as a market maker, actively buys and sells stocks on behalf of traders.
At the NYSE, the traffic controller is a specialist. He is responsible for setting the opening price for stocks, accepting limit orders, and moderating interest for particular stocks.