What Type of Market Is the NASDAQ?

By: Tim Grant | Reviewed by: Ryan Cockerham, CISI Capital Markets and Corporate Finance | Updated March 07, 2019

The NASDAQ mainly consists of technology companies.

computer image by Orlando Florin Rosu from Fotolia.com

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. More precisely, NASDAQ -- which is an acronym for the National Association of Securities Dealers Automated Quotations -- is an electronic stock exchange. But Nasdaq also refers to the Nasdaq Composite, which is an index of 3,000+ stocks that are listed on the NASDAQ exchange.

Tip

The term NASDAQ has two meanings: it represents an index of stocks (Nasdaq Composite) that are listed on the same-named stock exchange (NASDAQ).

Difference Between NASDAQ and NYSE

The primary difference between these two stock exchanges boils down to the way in which securities are traded. The NASDAQ represents a dealer's market, in which traders use a dealer for buying and selling instead of exchanging directly with each other. The NYSE represents an auction market, in which participants trade directly with each other in an auction-style format. In the auction environment, the lowest asking price is matched with the highest bidding price.

History of the NASDAQ

In 1971, the National Securities Dealers 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.

Exploring the Tech-Heavy of NASDAQ

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.

Examining Market Volatility

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.

Executing 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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Photo Credits

  • computer image by Orlando Florin Rosu from Fotolia.com

About the Author

Tim Grant has been a journalist since 1989 and has worked for several daily newspapers, including the Charleston "Post & Courier," the "Savannah News-Press," the "Spartanburg Herald-Journal," the "St. Petersburg Times" and the "Pittsburgh Post-Gazette." He has covered a variety of subjects and beats, including crime, government, education, religion and business. He graduated from The Citadel with a Bachelor of Science in business administration.

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