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Updated Oct 23, 2023

What is NASDAQ?

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Dock Treece, Business Strategy Insider and Senior Writer

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The NASDAQ Stock Market is an American stock exchange designed to enable investors to buy and sell stocks on an automatic, transparent and speedy computer network. Also known as “the NASDAQ” (National Association of Securities Dealers Automated Quotations), the exchange’s 1971 creation represented a new way for investors to trade without doing so in-person – a methodology that the National Association of Securities Dealers (NASD) believed burdened investors with inefficient trading and delays.

Makeup of the NASDAQ

More than 3,300 companies now trade publicly on the NASDAQ exchange, and it is the second-largest stock exchange in terms of securities’ values and the largest electronic stock market. The NASDAQ trades shares in several different types of companies – including capital goods, consumer durables and nondurables, energy, finance, healthcare, public utilities, technology and transportation – but it is well-known for its high-tech stocks.

Key TakeawayKey takeaway
NASDAQ is the world's second-largest stock exchange by total securities value.

To be listed on the NASDAQ National Market (NASDAQ-NM), companies must meet specific financial criteria. They must maintain a stock price of at least $1 and the value of outstanding stocks must total at least $1.1 million. For smaller businesses unable to meet the financial requirements, the NASDAQ Small Caps Market is available. NASDAQ will shift companies from market to market as eligibility changes. [Learn how to manage your business finances.]

Trading on the NASDAQ

Because it is an electronic exchange, the NASDAQ offers no trading floor. The exchange itself is a dealers’ market, so brokers buy and sell stocks through a market maker rather than from each other directly. A market maker handles a specific stock and holds a certain amount of stock in his or her books. When a broker wants to purchase shares, he or she does it directly from the market maker.

When the NASDAQ first began, stock trading took place over a computer bulletin board system and through the telephone. Now, trading on the NASDAQ occurs using automated trading systems, which offer full financial reports on trades and daily trading volumes. Automated trading also offers automatic execution of trades based on parameters set by the trader.

The listing fees on the NASDAQ are significantly lower than other stock markets, with the maximum price set at $150,000. This low fee enables the trading of many new, high-growth and volatile stocks.

While the New York Stock Exchange (NYSE) is still considered a bigger exchange because its market capitalization is much higher, the NASDAQ has a greater trading volume than any other U.S. exchange – with approximately 1.8 billion trades per day.

With no trading floor, NASDAQ built the NASDAQ MarketSite in Manhattan’s Times Square to create a tangible physical presence. The large outdoor electronic display gives current financial information on the tower 24/7. Trading takes place Monday through Friday, 9:30 a.m. to 4 p.m. Eastern time, except for major holidays.

How to trade NASDAQ stocks

While there are many nuances to the way NASDAQ works behind the scenes, it’s very simple for investors who want to trade stocks on the NASDAQ. Stocks that trade on the NASDAQ are freely available for trading on any major stock-trading platform, just like those that trade on the NYSE.

To trade stocks listed on the NASDAQ exchange, all an investor needs to do is set up a brokerage account on a platform like E-Trade or TD Ameritrade, fund the account, find the securities they want to trade and place an order.

In fact, most major trading platforms allow commission-free trading for stocks listed on the NASDAQ – the same way they do for those that trade on the NYSE.

History of the NASDAQ

Founded by the NASD, the NASDAQ opened on Feb. 8, 1971. The world’s first electronic stock market began by trading more than 2,500 over-the-counter securities. At the time, the NASDAQ was a computer bulletin board-type system. At first, no actual trading took place between buyers and sellers. Instead, the NASDAQ evened the traders’ odds by narrowing the spread between the bid price and ask price of stocks.

Thanks to its tech-heavy nature, the NASDAQ Composite took a major hit after the dot-com bubble burst in the late 1990s, dropping from over 5,000 to below 1,200. Here are some other notable dates on the NASDAQ timeline:

1975: NASDAQ invents the modern Initial Public Offering (IPO) by listing venture-capital-backed companies. This allows the underwriting syndicates to trade as market makers.

1985: NASDAQ creates the NASDAQ-100 Index.

1996: The first exchange website goes live: www.nasdaq.com.

1998: NASDAQ merges with the American Stock Exchange to form the NASDAQ-AMEX Market Group. AMEX was later acquired by NYSE Euronext in 2008 and its data was integrated into the NYSE.

2000: NASDAQ members vote to restructure and spin-off NASDAQ into a publicly traded shareholder-owner for-profit company: NASDAQ Stock Market Inc.

2007: NASDAQ acquires OMX, a Swedish-Finnish financial firm, and changes its name to NASDAQ OMX Group. NASDAQ OMX buys the Boston Stock Exchange.

2008: NASDAQ OMX purchases the Philadelphia Stock Exchange, the oldest stock exchange in the United States.

2009: NASDAQ OMX creates a mobile version of nasdaq.com, an industry first.

Did You Know?Did you know
Because of the NASDAQ's heavy tech component, the exchange indexes were hit much harder when the dot-com bubble burst in 1999/2000.

Why the NASDAQ is important

The NASDAQ exchange is significant because it was the first exchange that offered investors the ability to trade stocks transparently through an automated system. Today, the NASDAQ’s automated trading has become commonplace among other exchanges, but the NASDAQ remains unique because of its focus on high-tech companies.

The NASDAQ is also important because it’s relatively easier for companies to list on this exchange than others, such as the NYSE. This way, more businesses become publicly listed so investors can buy and sell their shares.

Lastly, the NASDAQ exchange offers investors a way to invest in much more volatile, potentially higher-growth securities than other exchanges that offer more stable, conservative companies.

Dock David Treece contributed to the writing and reporting in this article.

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Dock Treece, Business Strategy Insider and Senior Writer
Dock David Treece is a finance expert who has extensively covered business financial topics, including Small Business Administration (SBA) loans and alternative lending. He is the Senior Vice President of Marketing at BNY Mellon and the former Editorial Manager at Dotdash. He also previously worked as a financial advisor and registered investment advisor, as well as served on the FINRA Small Firm Advisory Board. Dock brings more than 17 years of experience, including his time as an entrepreneur co-founding and managing a small business. His entrepreneurial background gives him firsthand insight into the challenges small business owners face and the tools and tactics they can use to succeed.
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