NASDAQ

Definition

NASDAQ, short for the National Association of Securities Dealers Automated Quotations, is an electronic stock exchange that facilitates the buying and selling of stocks and other securities. It was founded in 1971 and is known for being the first electronic exchange, which revolutionized the trading process by providing a fully automated platform for market transactions, contributing to the overall development of stock markets in the United States and beyond.

5 Must Know Facts For Your Next Test

1. NASDAQ is the second-largest stock exchange in the world by market capitalization, after the New York Stock Exchange (NYSE).
2. It is known for hosting many technology and internet-based companies, including giants like Apple, Amazon, and Microsoft.
3. NASDAQ operates as a dealer's market, meaning that transactions occur through a network of dealers rather than on a physical trading floor.
4. The NASDAQ Composite Index is a key stock market index that includes over 3,000 stocks listed on the exchange, serving as an indicator of overall market performance.
5. In 2000, during the dot-com bubble, NASDAQ reached an all-time high of 5,048.62 before experiencing a significant decline as many tech stocks plummeted.

Review Questions

• How did NASDAQ's electronic trading platform change the way stocks are traded compared to traditional exchanges?
  • NASDAQ's electronic trading platform fundamentally changed stock trading by allowing transactions to occur automatically without the need for physical floor trading. This increased efficiency and speed in executing trades while also enabling greater access for retail investors. The shift to an automated system also allowed for more transparency in pricing and better liquidity in the market, making it easier for investors to buy and sell shares.
• Discuss the significance of NASDAQ in terms of its focus on technology companies within the broader stock market landscape.
  • NASDAQ's focus on technology companies has made it a leading exchange for innovative firms, particularly in sectors like software, biotech, and telecommunications. This emphasis has helped attract investment into high-growth industries that might not have thrived on more traditional exchanges. As a result, NASDAQ has become synonymous with technological advancement and growth potential in the stock market, influencing trends and investor sentiment across global markets.
• Evaluate how NASDAQ's role in initial public offerings (IPOs) affects both companies and investors in the modern economy.
  • NASDAQ plays a critical role in facilitating initial public offerings (IPOs), providing companies with access to capital needed for growth while offering investors opportunities to invest in new ventures. By listing on NASDAQ, companies can gain visibility among institutional and retail investors alike. For investors, NASDAQ's diverse range of IPOs offers potential high returns but also carries risks associated with investing in newly public companies. The exchange thus serves as a bridge between capital-seeking firms and those looking to invest in innovative business ventures.

Related terms

Stock Exchange: A marketplace where stocks, bonds, and other securities are bought and sold, serving as a platform for companies to raise capital and for investors to trade assets.

IPO: An Initial Public Offering, which is the process through which a private company offers shares to the public for the first time, often using stock exchanges like NASDAQ.

Market Capitalization: The total market value of a company's outstanding shares, calculated by multiplying the stock price by the number of shares available, a key metric used by investors to assess a company's size and investment potential.