Introduction
The National Association of Securities Dealers Automated Quotation System (NASDAQ) is a renowned US securities market established initially for over-the-counter (OTC) securities. It has since transformed into a robust computer-based trading platform that utilizes market-makers, standing as a formidable competitor to the New York Stock Exchange (NYSE).
Historical Context
Origins and Evolution
- Founded: NASDAQ was founded by the National Association of Securities Dealers (NASD) in 1971.
- Purpose: It was created to provide investors with a transparent and fair market for trading securities not listed on major stock exchanges.
- Transition: Over the years, NASDAQ has shifted from being an OTC market to a sophisticated electronic trading network.
Types/Categories of Securities Traded
- Common Stock
- Preferred Stock
- Exchange-Traded Funds (ETFs)
- Warrants
- Convertible Securities
Key Events
- 1971: NASDAQ launches as the world’s first electronic stock market.
- 1998: NASDAQ merges with the American Stock Exchange (AMEX), although they later separated.
- 2000: NASDAQ becomes a publicly traded company, listed on its own exchange.
- 2008: Acquires OMX, a leading Nordic exchange, forming NASDAQ OMX Group.
Detailed Explanations
Market-Makers System
Market-makers are firms that provide liquidity by being ready to buy and sell securities at publicly quoted prices. This system helps in maintaining market efficiency and stability.
Computer-Based Trading
NASDAQ operates without a physical trading floor. Instead, it utilizes electronic systems to match buy and sell orders, which increases trading speed and accuracy.
Mathematical Models and Formulas
- Order Matching Algorithm: Used to pair buy and sell orders efficiently.
- Market Maker’s Spread: Calculated as the difference between the bid and ask price.
Charts and Diagrams
NASDAQ Market Structure (Mermaid Diagram)
flowchart TD
A[Trader] -->|Submits Order| B[Electronic Trading System]
B --> C[Market-Maker 1]
B --> D[Market-Maker 2]
B --> E[Market-Maker 3]
C -->|Execution| F[Trade Confirmation]
D -->|Execution| F
E -->|Execution| F
Importance and Applicability
Key Role in Financial Markets
NASDAQ plays a critical role in the financial markets by providing a platform for tech-heavy stocks and fostering innovation in electronic trading.
Examples
- Apple Inc. (AAPL): One of the largest companies listed on NASDAQ.
- Microsoft Corp. (MSFT): Another tech giant trading on NASDAQ.
- Tesla Inc. (TSLA): Known for its electric vehicles, listed on NASDAQ.
Considerations
- Volatility: Tech stocks often exhibit higher volatility.
- Liquidity: The market-maker system ensures high liquidity for traded securities.
Related Terms with Definitions
- Electronic Communication Network (ECN): An automated system that matches buy and sell orders for securities.
- Bid-Ask Spread: The difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept.
Comparisons
- NASDAQ vs NYSE:
- Trading Floor: NASDAQ operates electronically; NYSE has a physical trading floor.
- Listing Criteria: NASDAQ tends to list more tech and growth-oriented stocks.
- Market-Makers: Both use market-makers but in different capacities.
Interesting Facts
- Global Reach: NASDAQ operates in multiple countries, making it a global financial market player.
- Innovation Hub: Home to some of the world’s most innovative companies.
Inspirational Stories
- NASDAQ’s Resilience: Despite market crashes and technological disruptions, NASDAQ has continuously evolved, showing resilience and adaptability.
Famous Quotes
- “NASDAQ is about trust and the absence of information.” - Carol Bartz
Proverbs and Clichés
- “Buy low, sell high” – A common investment strategy applicable to NASDAQ trading.
Expressions
- [“Going Public”](https://financedictionarypro.com/definitions/g/going-public/ ““Going Public””): The process of a company offering its shares to the public for the first time, often done via NASDAQ.
Jargon and Slang
- “Tech Stocks”: Refers to technology companies listed on NASDAQ.
FAQs
Q: What is NASDAQ?
A: NASDAQ is a US electronic securities market known for listing technology and growth-oriented companies.
Q: How does NASDAQ differ from NYSE?
A: NASDAQ is fully electronic, while NYSE has a physical trading floor. NASDAQ lists more tech-heavy stocks compared to NYSE.
Q: What is a market-maker?
A: A market-maker is a firm that provides liquidity by being ready to buy and sell securities at publicly quoted prices.
References
- NASDAQ Official Website: www.nasdaq.com
- Securities and Exchange Commission (SEC): www.sec.gov
- Historical Data on NASDAQ: Yahoo Finance
Summary
The National Association of Securities Dealers Automated Quotation System (NASDAQ) stands as a hallmark of innovation in the financial markets. It has evolved from an OTC market to a premier electronic trading platform, hosting some of the world’s most influential companies. By embracing technological advancements and maintaining robust market-maker systems, NASDAQ continues to play a crucial role in global finance.
