What Type of Market Is the NASDAQ?

The NASDAQ is the largest fully electronic stock market in the United States, with average daily volume running about 2 billion shares a day. Unlike other major stock markets such as the New York Stock Exchange and the American Stock Exchange, the NASDAQ has no physical trading floor where shares of stock are bought and sold. It is operated instead by a series of computer terminals. The NASDAQ has, however, established a physical presence for itself in New York City's Times Square, where it comes to life as a brightly lit seven-story billboard, displaying stock quotes, financial news and advertisements.

History

The National Securities Dealers in 1971 created a fully integrated, computerized trading system they named NASDAQ, which stands for National Association of Securities Dealers Automated Quotron. The idea behind its creation was to increase the amount of trading of over-the-counter stocks, which often could not meet the requirements of the larger stock exchanges where floor traders operate. The NASDAQ linked the computer terminals of more than 500 market makers to its automated system. Within two decades of its creation, the NASDAQ had grown into the second largest stock market in the United States and the third largest in the world.

Tech-Heavy

There are more than 3,200 companies listed on the NASDAQ, and they cover the entire spectrum of the U.S. economy -- from financial to transportation -- but the majority of them are technology companies. Some of the more well-known companies whose stock trades on the NASDAQ include Microsoft, Cisco Systems, Intel, Dell and Google.

More Volatile

Due to the way shares change hands in its electronic system, stock prices on the NASDAQ market can rise and fall at break-neck speeds. While other major exchanges may have only one specialist handling trades for a single stock, a NASDAQ stock may have as many as 50 or 60 market makers -- also known as middlemen -- handling a stock and possibly 10 electronic communications networks buying and selling a particular stock at any time.

NASDAQ Trades

When you buy and sell NASDAQ stocks, the orders are sent out electronically on the NASDAQ, where market makers list their buy and sell prices for a particular stock. When buyers and sellers agree on a stock price, the trade is executed electronically.

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