What is NASDAQ and how does it function?

The NASDAQ (National Association of Securities Dealers Automated Quotations) is a prominent American stock exchange that revolutionized trading by introducing electronic trading systems. Founded in 1971, NASDAQ operates through a sophisticated network of computers that facilitates the buying and selling of stocks. This electronic trading platform is a departure from traditional exchanges that relied on physical trading floors.

NASDAQ’s primary function is to provide a platform where investors can trade securities, including stocks and bonds, efficiently and transparently. Unlike other exchanges that use a trading floor model, NASDAQ operates through a network of computers and a system of market makers who quote prices at which they are willing to buy or sell stocks. This model allows for faster transaction processing and more efficient price discovery.

One of NASDAQ’s notable features is its focus on technology and innovation. It has become the exchange of choice for many technology and biotechnology companies, reflecting its strong emphasis on growth-oriented and high-tech industries. NASDAQ operates under a dealer network model, which contrasts with the auction model used by exchanges like the New York Stock Exchange (NYSE).

NASDAQ uses various indices to track the performance of its listed companies. The most well-known of these is the NASDAQ Composite Index, which includes over 3,000 stocks listed on the exchange. This index serves as a broad measure of NASDAQ’s overall market performance and is heavily weighted towards technology companies.

Another significant index is the NASDAQ-100, which comprises 100 of the largest non-financial companies listed on NASDAQ. The NASDAQ-100 is known for its heavy concentration in technology and biotechnology sectors, making it a crucial indicator of tech sector performance.

The operational model of NASDAQ includes continuous trading, where trades are executed as soon as buy and sell orders match. This results in real-time price updates and greater market transparency. NASDAQ also offers various trading services and platforms, including NASDAQ MarketSite and NASDAQ Trader, which provide market data and trading tools to investors and traders.

In summary, NASDAQ has transformed the trading landscape through its electronic trading system, focus on technology and innovation, and diverse indices. Its model of continuous trading and dealer network has set it apart from traditional exchanges and positioned it as a leading platform for growth-oriented companies.