What is the Nasdaq?

Many people choose to invest to support their retirement goals or earn passive income, and investing in stocks can be a great way to earn a return on your money. It can be a little intimidating if you're new to the practice, though, so understanding the various stock exchanges, like the Nasdaq exchange, is an excellent place to start. 

What is the Nasdaq and how does it work?

How the Nasdaq Works

The Nasdaq is a stock exchange that lists stock prices for various companies in the technology, finance, transportation, finance and healthcare sectors, much like the New York Stock Exchange (NYSE). “Nasdaq” itself is an acronym, standing for National Association of Securities Dealers Automated Quotations. 

The Nasdaq acts as an intermediary between investors and companies represented on the exchange through which investors can find data regarding a company’s share price, ticker symbol and historical performance. Other information, like company financials and P/E ratios, are also available.

Unlike the New York Stock Exchange (NYSE), however, which is physically located in a New York City building and operated through the work of a full trading floor, the Nasdaq primarily runs via a network of computers. There is no trading floor, and all transactions are completed electronically. Various investment firms, known as market makers, hold shares of the trading companies and execute orders when an investor decides to buy or sell.

Over 3,500 companies that list their shares on the Nasdaq, representing a total market capitalization of over $24 trillion.

The Nasdaq as a Stock Exchange

The Nasdaq allows companies to list their shares on its exchange as long as they meet specific requirements, including financial, liquidity and corporate governance criteria. Companies can qualify for four different financial standards. 

At a minimum, the company must offer at least $1.1 million in unrestricted, publicly held shares. They must then place those shares with at least three different market makers. Earnings requirements vary. Under one standard, the company must maintain an income of at least $1 million from its operations, whereas other standards don’t require a minimum amount of earnings.

Nasdaq-listed companies must agree to make their financial statements publicly available through the organization’s website, and they must maintain a majority of independent directors. Once a company completes the listing process, its shares will appear on the Nasdaq, and interested investors can begin trading shares in the organization.

Major Companies Listed on the Nasdaq

A few of the major companies that choose to list their stocks on the Nasdaq are as follows:

• Netflix Inc. (NASDAQ: NFLX): First listed on the Nasdaq in 2006 for a price of $3.69 per share, the entertainment streaming giant now has an average share price of nearly $450.
• Adobe Inc. (NASDAQ: ADBE): Adobe’s software is used by various businesses and individuals. Initially listing its stock on the Nasdaq in 2006 for $41.12 per share, it now trades at over $500.
• Keurig Dr. Pepper Inc. (NASDAQ: KDP): Keurig Dr. Pepper produces in-home coffee makers and the soda Dr. Pepper. The company first listed its stock in 2008 for $24.95 per share.
• Amazon.com (NASDAQ: AMZN): Amazon, the leader in e-commerce, first listed its shares on the Nasdaq in 2006 for a little over a dollar, but it now trades at around $130 per share.

Other major companies, including Google, Marriott and Starbucks, also list their shares on the Nasdaq.

Nasdaq Trading Hours

The Nasdaq conducts regular trading between 9:30 a.m. and 4:00 p.m. EST from Monday through Friday. It is also open for pre-market and after-market trades. The pre-market trading time is between 4:00 a.m. and 9:30 a.m. EST. After-hours trading occurs from 4:00 p.m. until 8:00 p.m. No trading occurs on Saturdays or Sundays, and the exchange observes federal holidays, so trading is also paused on those days.

History of the Nasdaq

When first introduced in 1971, the Nasdaq wasn’t a stock exchange but instead a place to show real-time stock prices obtained via other trading platforms, like the NYSE. 

Its elaborate network of computers, however, set the stage for electronic trading, which became the norm over future decades. The Nasdaq was the first company to create a website for its stock exchange, and it was also the first to allow online trading.

As the Nasdaq evolved, its company began facilitating over-the-counter trades for stocks not listed on public stock exchanges, and from there, it started accepting listings for companies that met specific requirements.

Today, the Nasdaq is often the go-to stock exchange for companies operating in the tech space, though organizations in other market sectors also list their businesses on the Nasdaq. In addition to stocks, the organization also facilitates bond and commodities trading, as well as exchange-traded funds (ETFs).

The Nasdaq vs. Other Stock Exchanges

As outlined above, the Nasdaq doesn’t have quite as lengthy a history when compared to other stock exchanges, like the NYSE, which traces its origins back to 1792, when two dozen stockbrokers founded the company under the Buttonwood Agreement. Today, the NYSE remains the world’s premier stock exchange, listing nearly 2,000 domestic and international companies.

The NYSE has stringent listing requirements that companies must fulfill before being listed. For instance, the earnings test requires an adjusted aggregate pre-tax income of at least $10 million for the last three years. If the company does not meet the earnings test, it may qualify for listing if it has a minimum of $200 million in market capitalization.

International companies must meet even stricter standards to be listed on the NYSE. The earnings test for non-U.S. organizations requires an aggregate pre-tax income of $100 million for the past three years or a minimum global market capitalization of at least $500 million. 

The Nasdaq’s listing requirements are, in contrast, much easier to meet. A minimum of $1M in aggregate pre-tax income for the past three years and a minimum market value of $16 million is enough to suffice for listing both domestic and international companies on the Nasdaq Global Market. 

Another advantage of listing a company on the Nasdaq is its cheaper listing fees. The Nasdaq’s annual listing fees start at $50,000 for companies with less than 10 million shares, whereas the NYSE requires a yearly listing fee of at least $74,000. Both the NYSE and Nasdaq increase their annual costs based on the number of outstanding shares the company has.

In general, a listing on the NYSE is considered more prestigious than one on the Nasdaq, as the former is known for listing blue chip stocks. That paradigm is slowly shifting, however, because some major companies, like Alphabet, Netflix and Amazon, list their shares with Nasdaq instead of the NYSE.

Other American stock exchanges besides the NYSE and the Nasdaq include the Chicago Stock Exchange, Philadelphia Stock Exchange and Boston Stock Exchange, while some major global stock exchanges include the London Stock Exchange and the Tokyo Stock Exchange.

Nasdaq Is Known for Technology Stocks

As the exchange that first allowed online stock trading, it’s only natural that some of the Nasdaq’s biggest listed companies are titans of the technology sector. Investors wanting to hold shares of technology stocks will find that many are listed on the Nasdaq. In any case, keep in mind that while the Nasdaq facilitates trading and provides data, it remains an intermediary between organizations and investors.

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