November 5, 2021 4:06 PM

What is the Nasdaq?

DEFINITION:

1) Nasdaq Stock Market: an electronic stock exchange for buying and selling stocks.

2) Nasdaq Composite Index of 2,500+ stocks listed on the Nasdaq exchange. The Nasdaq tends to reflect a current situation of the broader tech industry.

Understanding the definition:

Tech only: The Nasdaq Stock Market is a stock exchange with its roots in technology as the first global electronic marketplace. Being rigorously built in 1971, Nasdaq was launched to make trading fast and computer-centric. With this tech focus, Nasdaq attracted a large number of technology-oriented companies to IPO on its exchange. While the Nasdaq Composite Index displays that — It's an index made up of over 2,500 companies listed on the Nasdaq exchange. Since mostly all of them are tech companies in there, investors look to the Nasdaq index to answer the question of  "how is it going on the tech stock market ?"

Recap

While having its roots in technology and innovation, Nasdaq is known for attracting tech companies to list their shares for IPOs. And its Nasdaq Composite index is widely used by investors as a representation of the tech industry's performance.

The history of Nasdaq

You could hear the term used in two ways:

  1. As a question of "How's the Nasdaq doing?" That applies to the Nasdaq's stock index or the Nasdaq Composite

   

2.     The Nasdaq Exchange - the world's first electronic trading floor on which companies, mostly tech ones, list their shares. Many of those are included in the Nasdaq Composite index in order to give a sense of the current situation in the tech sector.

The world's second-largest stock exchange by market capitalization and first specifically tech one was launched in 1971 by the National Association of Securities Dealers. The main goal was to implement new technologies in trading, namely, at the time, computers, to allow automated quotations and therefore to provide trading of stocks.

There was an intense rivalry with its main competitor, the New York Stock Exchange ("NYSE"), and the technological focus appeared to be the main differentiator. What is more, Nasdaq was the first platform that allowed to trade online. And it's ultimately electronic.

With time, most of the leading tech companies were attracted by Nasdfaq's commitment to technology. That fact made Nasdaq a popular place for innovative tech companies' IPO listings. Different partnerships and acquisitions contributed to the NASDAQ extension, however in 2006, Nasdaq separated from its original founding partner NASD and a year later, added a Scandinavian-based Exchange, OMX.

Nowadays, with its tremendous growth in the tech sector, the NYSE has increased its focus on tech enterprises.

A few words about Nasdaq Composite

It isn't enough to look at just a few stocks to understand how the market is doing. That's why looking at the stock indexes is conducive. Such indexes turn out to be specific formulas that create a number that reflects either a broader market or a particular industry.  

Once an investor gets curious about the tech sector, it's necessary to turn to the Nasdaq Composite. Other companies have also been listed on the Nasdaq. And a selection of more than 2500 companies is included in the Index.

Nasdaq Composite key features:

  • It's tech-oriented: and it has a heavy tech character.
  • It's weighted: The stocks are weighted in the Index to account for their different sizes (their size is their value by market capitalization). And the Index uses a formula to account for that.
  • It's not just stocks: The Index includes a variety of tech-related securities.
  • It's international:   Unlike other indexes.


You can also read more about other Indexes like the S&P 500 or the Dow in our Grid Capital Library.

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