What Does NASDAQ Stand For?
NASDAQ stands for National Association of Securities Dealers Automated Quotations. It is the second largest stock market in dollar volume in the United States behind the New York Stock Exchange. It is a completely electronic stock exchange, making its operation completely different than the New York or American Stock Exchange.
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Function
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The NASDAQ executes stock trades with computers instead of having people do it on a trading floor. Buyers and sellers of stocks are matched up electronically. As a result, it looks completely different than the New York Stock Exchange or the American Stock Exchange. It is often called an "over the counter market." NASDAQ does not buy unfilled orders with market specialists like the NYSE.
Types
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The NASDAQ lists about 3200 securities, more companies than the New York Stock Exchange. NASDAQ also has a higher average trading volume. The NASDAQ is known for trading technology stocks, but all industry sectors are represented. About 10 percent of NASDAQ stocks are those of foreign-owned companies. For a company to be listed on the NASDAQ it must have at least three market makers to broker its shares. There are also strict requirements for the company's assets, capital and shareholders. The company must be registered with the Securities and Exchange Commission.
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History
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The concept of the NASDAQ came from brokers trading stocks over the telephone. On on February 5, 1971, the NASDAQ officially opened as the world's first electronic stock bulletin board system. Soon afterward it was connecting buyers with sellers. In 1998, NASDAQ's parent company, the National Association of Securities Dealers, acquired the American Stock Exchange. They operated independently under that same ownership until 2004 when the AMEX was bought out and became independent again. In 2007, NASDAQ acquired the Philadelphia Stock Exchange.
Warning
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The NASDAQ grew to prominence following the October 1987 stock market crash. During the crash many investors could not get in touch with brokers to complete their orders. NASDAQ developed the Small Order Execution System to automatically execute orders for individual traders with orders of one thousand shares or less. This guaranteed that small orders would be transacted during turbulent trading days.
Features
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The NASDAQ composite Index represents all common stocks listed. It is market value-weighted, meaning it considers the total market capitalization of the stocks in the NASDAQ instead of just the share prices. The NASDAQ composite Index is often used to judge the progress of the technology sector, since NASDAQ has so many tech stocks.
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