NASDAQ

Definition

NASDAQ is an electronic stock exchange that was founded in 1971, known for being the first electronic marketplace to facilitate the buying and selling of stocks. It is characterized by its high-tech focus and listing of many technology companies, making it a critical platform for traders and investors seeking to engage with the stock market in real time.

5 Must Know Facts For Your Next Test

1. NASDAQ originally stood for the National Association of Securities Dealers Automated Quotations, highlighting its role in automating stock quotes.
2. It operates as a dealer's market, meaning transactions occur through a network of dealers rather than a physical trading floor.
3. Many well-known technology giants, including Apple, Amazon, and Microsoft, are listed on NASDAQ, contributing to its reputation as a tech-heavy exchange.
4. NASDAQ was the first stock exchange to implement fully electronic trading, which revolutionized how trades are executed and monitored.
5. The NASDAQ Composite Index is one of the major stock market indices in the U.S., reflecting the performance of over 3,000 companies listed on the exchange.

Review Questions

• How did the introduction of NASDAQ as an electronic marketplace change trading practices in finance?
  • The introduction of NASDAQ as an electronic marketplace revolutionized trading by enabling faster transactions and providing real-time data access for traders. This shift reduced reliance on traditional trading floors and improved transparency in pricing. Additionally, it made it easier for individual investors to participate in the stock market, as they could access trades from anywhere with an internet connection.
• What distinguishes NASDAQ from other stock exchanges like the NYSE in terms of structure and operation?
  • NASDAQ operates as a dealer's market with multiple market makers facilitating trades, unlike the NYSE, which functions as an auction market where buyers and sellers trade directly. This difference allows NASDAQ to provide continuous trading throughout the day without the need for physical presence on a trading floor. Moreover, NASDAQ's focus on technology companies distinguishes it as a leading exchange for innovative businesses.
• Evaluate the impact of NASDAQ's high concentration of technology companies on investment strategies and market trends.
  • NASDAQ's heavy concentration of technology companies influences investment strategies significantly, as investors may focus on sectors driven by innovation and growth potential. The performance of tech stocks can lead to greater market volatility, impacting overall trends in stock prices across different sectors. Furthermore, the rise of index funds tracking the NASDAQ Composite Index has led to increased capital flow into tech stocks, shaping investment decisions and asset allocation in portfolios.

Related terms

Stock Market: A collection of markets where shares of publicly held companies are bought and sold.

Electronic Trading: The process of executing trading orders through an electronic platform rather than via traditional methods.

Index Fund: A type of mutual fund or exchange-traded fund that aims to replicate the performance of a specific index, like the NASDAQ-100.