All About the Nasdaq Stock Market
Nasdaq stock market is an American stock exchange that is based in New York City. It is the second in terms of market capitalizations of shares traded. Nasdaq Inc. owns this exchange platform. Nasdaq stands for National Association of Securities Dealers Automated Quotations. It is also known as the Nasdaq composite.
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About Nasdaq Stock Market
Nasdaq stock market commenced operations in 1971. It is the world’s first electronic exchange where investors trade in security. It operates 25 financial markets, one clearinghouse and five central securities depositories around the US and Europe. Nasdaq is the second-biggest stock exchange in terms of the market capitalization of shares traded.
At the exchange, market makers maintain stock inventories to buy and sell from their accounts in transactions with customers and dealers. Market makers offer two-sided quotes. They state the bid and ask for prices of security in which they are creating a market. Over 260 market-making firms offer liquidity for Nasdaq index-listed stocks.
Since 2006, Nasdaq has operated as the national securities exchange.
Sources of Revenue
Nasdaq earns revenue from financial institutions, corporations, brokers and institutional investors. It charges fees for:
- Market services for allowing access to various markets
- Investment intelligence includes access to data, indices, investments analytics for various financial institutions, asset managers and brokers
- Market technology including anti-financial crime technology solutions, trading and settlement platforms
- Corporate services including investment relations services and listing fees
Nasdaq Financial Performance
The following table briefs about the Nasdaq’s financial performance in the past four years:
Nasdaq achieved record closing in November 2021, when the composite index hit at 16,057.44. This was a gain of more than 490% from January of 2012 when the index was trading at 2,710.
Requirements for Listing in Nasdaq
An interested company must submit an application for listing in the Nasdaq stock market. The process of a new listing application takes four to six months. The Nasdaq Listing Qualifications Staff conducts a preliminary review of the application and issues a comment letter to the company.
The company will have to resolve any issues within that specified time period as raised in the comment letter. Nasdaq will complete its review and then the company will be approved for listing.
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Market Tiers in Nasdaq Stock Market
The Nasdaq Stock Market have three different market tiers:
1. The NASDAQ Global Select Market (NQGS)
It is a market capitalization-weighted Nasdaq index composed of the US and international stocks that represent NASDAQ Global Select Market. NASDAQ Global Select Market Composite consists of over 1,400 stocks that meet Nasdaq’s financial and liquidity requirements and corporate governance standards.
It has the highest initial listing standards in the world. Nasdaq Listing Qualifications Department reviews Global Market Composite every October. It determines if any stocks have become eligible for listing on the Market.
Global Select has more stringent listing requirements than other tiers on the Nasdaq stock market. A company must meet all the criteria of at least one of the four Nasdaq standards:
1: Earnings
2: Capitalization with cash flow
3: Capitalization with revenue
4: Assets with equity
The company should meet liquidity requirements whether the company is an initial public offering (IPO), spinoff or a trading common stock.
2. The NASDAQ Global Market
Companies within Nasdaq Global Market have an international reach with products and services. The requirements for global market are stringent in comparison with the Nasdaq Capital Market.
Companies must meet criteria that are based on income, equity, market value and total assets/revenue. The company needs to have a minimum of 1,100,000 publicly traded shares. The trade should be at a minimum of $4 with certain exceptions.
3. The NASDAQ Capital Market
It is one of the three Nasdaq’s U.S. market tiers that consist of early-stage companies with relatively lower market capitalizations. This market majorly lists small-cap stocks that have market capitalizations ranging between $300 million and $2 billion. It is mandatory to maintain the same corporate governance for Nasdaq listing across all tiers. There must be a code of conduct, audit committee as well as independent directors.
Early-stage companies can easily list themselves in comparison with other senior exchanges. To list on the Nasdaq Capital Market, companies must meet each criterion under one of three listing standards. Companies can pick the standard that best fits them.
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The Nasdaq Composite And Nasdaq 100 Indexes
The Nasdaq Composite Index is one of the widely used indexes that reflects the overall performance of stock market. It is a large index that consists of more than 3,000 common stocks that belong mostly to technology companies. Some other industries include oil, consumer goods and healthcare.
The Nasdaq 100 index tracks the 100 largest and most actively traded securities in the Nasdaq Composite. It constitutes 101 equity securities issued by the 100 largest non-financial companies that are listed on the Nasdaq stock market.
It is a modified capitalization-weighted index. The weights of stocks in the index are based on market capitalizations. There are certain rules that cap the influence of the largest components.
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How to Invest in Nasdaq Stocks
You should look up individual companies that are listed on the Nasdaq. You can purchase individual shares using your online brokerage account. Purchasing individual stocks can become risky and you will need to buy shares of multiple companies to diversify your portfolio. This also helps in minimising the risk of losing money if a company is not performing well.
You can invest in Nasdaq stocks by buying index funds or ETFs that hold Nasdaq company stock. The technology-based companies heavily impact the Nasdaq stock market which can yield both high and low returns. To seek the best investment option, you can speak to an expert financial advisor about planning your financial goals.
FAQs
How do I invest in the NASDAQ stock market?
In case you want to invest in the NASDAQ Index, you can do that in three steps. 1. Decide whether you want to invest in mutual funds or ETFs. Once you have decided, you can research the top-performing funds that track the performance of the NASDAQ index. 2. If you own IRA or 401(k), you can buy mutual funds or ETFs through your current account. Log into your account and search for NASDAQ index fundsu2019 ticker symbols of your choice. You can enter the number of shares that you want to purchase and set up automatic contributions to purchasing shares in future. 3. You can open a brokerage account to invest in index funds if you do not have the access to a retirement account. 4. Compare the minimum investment of companies, fees, and investment types. Some companies only allow investment in individual stocks, bonds and mutual funds while others specialise only in ETFs. 5. You can sign up with a brokerage firm in case you want to go for passive investment. 6. The company will review your financial goals and risk tolerance and design a portfolio and asset allocation that meets your needs.
Which is better for investment: mutual funds or ETFs?
There are different pointers on the basis of which you can decide between mutual funds and ETFs. 1. Mutual funds can be traded only once per day. On the other hand, you can trade in ETFs throughout the day. 2. You need to make a minimum investment of $1,000. If you have limited funds, you should go for an ETF since you can get started with a single share. 3. ETFs are more flexible in pricing than mutual funds. You can set up automatic limits to trade securities when they reach a specific price.
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