How does nasdaq function

While Nasdaq has plenty of giant corporations, such as PepsiCo. Nasdaq equities have a reputation for innovation, disruption — and volatility.

Originally, it was just a quotation system — an electronic ticker of bid and ask prices — but it began adding trading and transactional systems. The Nasdaq does not have, and has never had, a physical trading floor.

This became a problem for the exchange in as major companies such as Microsoft threatened to leave. No trading floor meant no physical presence, no opening bell ceremony, and, more importantly, no place for media networks to broadcast from during the trading day. That problem was solved in with the construction of a massive story tall tower at the corner of 43rd and Broadway in New York City, known as MarketSite , complete with video screens, a full television studio, and, yes, an opening bell ceremony.

But the actual trading remains electronic. It's a bit ironic: Nasdaq, which began as an all-electronic exchange, had to create a physical presence to gain credibility with Wall Street. But eventually, the NYSE and other older, established exchanges, discovered the need for an electronic component in order to stay competitive in a rapidly evolving marketplace.

Nasdaq isn't just a stock exchange. It also has two highly regarded indexes that track the performance of Nasdaq stocks daily:. Of the two, the Nasdaq Composite is the more influential. When commentators refer to "the Nasdaq closing up five points," it's usually the Composite they mean. While the Composite index is more widely followed, the Nasdaq is viewed by traders and investors interested in futures, options, and exchange-traded funds.

Both the Nasdaq Composite and Nasdaq use the same modified market capitalization weighting method in which the closing price of each share LSP is multiplied by the total shares outstanding TSO for that company to arrive at that stock's market capitalization.

Share weights are calculated by dividing each security's market capitalization by the total capitalization of all index securities. Personal Finance. Credit Cards. About Us. Who Is the Motley Fool? Fool Podcasts. New Ventures. Search Search:. Dan Caplinger. Looking to invest? OTC Markets Where stocks that aren't listed on the major exchanges can be traded.

What are Nasdaq trading hours? The Nasdaq closes for a handful of holidays each year, as shown below:. What is the NYSE? The New York Stock Exchange has two primary functions: It provides a central marketplace for investors to buy and sell stock. It enables companies to list their shares and raise capital from interested investors. Recent articles. Alphabet in 4 Charts: Buy or Sell?

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Jason Hall Nov 8, Nasdaq vs. Nasdaq Performance. Learn about our editorial policies. Reviewed by Michael J Boyle. Article Reviewed April 29, Michael Boyle is an experienced financial professional with more than 10 years working with financial planning, derivatives, equities, fixed income, project management, and analytics.

Learn about our Financial Review Board. Fact checked by Emily Ernsberger. Article Fact Checked November 03, Emily Ernsberger is a fact-checker and award-winning former newspaper reporter with experience covering local government and court cases. She also served as an editor for a weekly print publication. Her stint as a legal assistant at a law firm equipped her to track down legal, policy and financial information.

Nasdaq NYSE Fully electronic trading system Trade electronically and on physical trade floor Dealer's market, not direct Auction market facilitating direct trades Narrower, smaller market tech-heavy Broader, larger market More volatile, growth-focused Less volatile.

Key Takeaways The Nasdaq is the second-largest stock exchange in the world. It was the first electronic stock exchange in Companies listed on the Nasdaq tend to be high-tech and growth-oriented.

Nasdaq equities are generally seen as more volatile than the NYSE but can boast very high returns. Article Sources. Part Of. The time period from open to close has continuous trading. Eastern time ET , market participants can enter buy and sell orders starting at a. These orders are matched, with the highest bidding price paired with the lowest asking price.

Orders for the closing auction are accepted until p. ET, and orders can be canceled up until p. The Nasdaq and the NYSE both use market makers to improve liquidity and maintain a fair and orderly market. However, there are differences in how each functions. At the Nasdaq, market makers maintain inventories of stock to buy and sell from their own accounts in transactions with individual customers and other dealers.

Market makers give two-sided quotes, meaning that they state the bid and ask prices for a security in which they are making a market. More than market-making firms provide liquidity for Nasdaq-listed stocks.

DMMs have more duties than traditional market makers. DMMs provide stability by taking the other side of the trade when imbalances occur, buying when investors are selling and vice versa.

They run the opening and closing auctions, using human input and algorithms to help promote price discovery when volume is typically at its highest. One quality about the NYSE and the Nasdaq that must be acknowledged is how each exchange operator is generally perceived by companies and investors. The Nasdaq is known for technology and innovation, and it is home to Internet, biotechnology, and other companies at the cutting edge.

As such, stocks listed on the Nasdaq are considered growth -oriented and more volatile. Companies that list on the NYSE are perceived as more stable and well established.

The NYSE draws blue chips and industrials, some of which have been in business for generations. However, these perceptions may not be as relevant today as they were in the past, as is evident by the current listing requirements of the NYSE.

Whether a stock trades on the Nasdaq or the NYSE is not necessarily a determining factor for investors. But it can be for companies when deciding where to list, due to how each exchange is perceived.

Listing requirements can also affect this decision, which for the Nasdaq are more favorable to new companies. Of these, the Nasdaq Capital Market has the lowest entry requirements.

Annual fees are calculated on a per-share basis. The Nasdaq and the NYSE were private companies until their shares became publicly available in and , respectively.