Nasdaq

Definition

The NASDAQ is an electronic stock exchange based in the United States that allows investors to buy and sell shares of publicly traded companies. It is known for having a high concentration of technology and growth-oriented firms, making it a key player in the global financial markets and providing a platform for both common and preferred stock transactions.

5 Must Know Facts For Your Next Test

1. The NASDAQ was founded in 1971 and was the world's first electronic stock market, revolutionizing how stocks were traded.
2. It lists many of the largest technology companies, including Apple, Microsoft, and Amazon, making it a barometer for tech industry performance.
3. The NASDAQ operates using a dealer's market structure where multiple market makers facilitate trading by providing liquidity.
4. Companies listed on the NASDAQ must meet specific financial and regulatory requirements, including minimum share price and market capitalization.
5. The NASDAQ Composite Index is a key market index that tracks the performance of all the stocks listed on the NASDAQ exchange.

Review Questions

• How does the structure of the NASDAQ differ from traditional stock exchanges, and what impact does this have on trading?
  • The NASDAQ operates as an electronic dealer market, unlike traditional exchanges that use a physical trading floor. This structure allows for faster transactions and greater accessibility for traders since trades can be executed electronically without the need for face-to-face interaction. The electronic nature of the NASDAQ also facilitates higher trading volumes, particularly in tech stocks, leading to increased liquidity and efficiency in the market.
• Evaluate the significance of having a large number of technology companies listed on the NASDAQ in relation to common and preferred stock features.
  • Having many technology companies on the NASDAQ highlights the importance of growth-oriented firms in today's economy. Common stockholders in these companies typically benefit from potential capital appreciation as these firms expand. Preferred stock may also be issued by these companies, providing fixed dividend payments that appeal to more risk-averse investors. This mix of stocks caters to diverse investor strategies, balancing risk with potential rewards.
• Analyze how changes in the NASDAQ can reflect broader economic trends, especially concerning investor sentiment towards common versus preferred stocks.
  • Changes in the NASDAQ can signal shifts in investor sentiment regarding growth prospects and economic conditions. For instance, a bullish trend on the NASDAQ may indicate strong confidence in technology and growth sectors, leading investors to favor common stocks that promise capital gains. Conversely, if the market is bearish or uncertain, investors may shift towards preferred stocks for their stability and fixed dividends. This dynamic reflects broader economic trends where investor preferences fluctuate between seeking high returns through common stocks and prioritizing safety with preferred stocks during volatility.

Related terms

Exchange: A marketplace where securities, commodities, derivatives, and other financial instruments are traded.

Common Stock: Equity securities that represent ownership in a company and entitle shareholders to vote at shareholder meetings and receive dividends.

Preferred Stock: A class of stock that provides shareholders with fixed dividends and priority over common stockholders in the event of liquidation.