Nasdaq Stock Exchange -- the Details ....Let's first start with an explanation of what exactly the Nasdaq Stock Exchange means. Then, a very brief history lesson and some interesting details on how it works.
Nasdaq stands for National Association of Securities Dealers Automated Quotations. It was started in 1971 and has the distinction of being the world's first electronic stock exchange. Nasdaq is no longer an acronym today ..... it's now a proper noun and, hence, can be written without capitalizing all its letters.
The NASD (National Association of Securities Dealers) used to regulate Over The Counter (OTC) stock transactions .... buying and selling of stocks not listed on the major U.S. stock exchanges. On Feb. 5, 1971, they created the Nasdaq using computers to list bid and offer prices for OTC stocks. This primitive (in today's context) computer system pioneered the development of the today's online stock exchanges. A little later we will examine how this system works today.
Okay..... so if the Nasdaq is really a stock exchange, why is it treated like an index? Why do we hear the financial news media say things like "The Nasdaq went up by 50 points today"? When Nasdaq is used in this context it really means the Nasdaq Composite Index. This index contains nearly 3,000 companies listed on the Nasdaq Stock Exchange and is considered one of the largest and most broad-ranging as far as indexes go. Both domestic and international companies are listed on this index.
As of mid-2009 the Nasdaq Composite Index has close to 3,000 companies listed. This index is widely perceived as reflecting the performance of technology and growth companies. The dot-com bubble in early 2,000 saw the Nasdaq Composite Index drop by a staggering 50% within a year indicating how tech-heavy this index is. Apple, Microsoft, Dell, and Intel are all listed on the Nasdaq.
The Nasdaq uses a system of computers to price and exchanges stocks. It does not rely on the traditional trading floor. As a result, it can provide instant quotes (less than 1 millisecond) for stocks. A stock is traded by the investor's broker entering the stock quote into the computer system. The computer finds the best price and the trade is executed within a millisecond. Nasdaq stock pricing and exchange can also be performed via telephone, teletype or via a corporation's inventory account.
In summary, the Nasdaq was the first electronic stock exchange in the world. Top technology companies are listed on this exchange and the Nasdaq composite index tends to reflect the performance of the technology sector. The exchange is completely electronic -- instant quotes and high transaction speeds are its hallmarks.
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