NASDAQ – What is it and How Does it Work?

Categories: Education | Published by: Henry Hicks

23/09/2023

NASDAQ – What is it and How Does it Work

Table of Contents

What is the Nasdaq?

The Nasdaq Stock Market, also known as Nasdaq, is an American stock and securities exchange, known globally for being the second-largest stock exchange by market capitalization after the NYSE (New York Stock Exchange). Nasdaq is short for the National Association of Securities Dealers Automated Quotations.

Unlike many other stock exchanges, Nasdaq does not have a physical floor, and all trades are performed electronically. It was actually the very first fully electronic stock market in the world. All Nasdaq trades take place electronically via an automated network of computers.

Nasdaq also refers to the market index fund, the Nasdaq Composite, that follows the trends of Nasdaq and trades accordingly. It includes companies from a wide spectrum of nonfinancial industries, such as Technology, Health Care, and Retail.

Nasdaq’s performance

Since Nasdaq mainly consists of tech stocks, its’ overall performance has been very strong in the past years, as we entered the age of Information. In mid-2020, Nasdaq has reported a five-year return of 118% and a ten-year return of 426%.

What is NASDAQ 100?

The NASDAQ-100 is the premier large-cap growth index and provides the basis for benchmarking numerous investment products. The index comprises 100 of the largest non-financial organizations that are listed on the NASDAQ stock market.

The top ten companies that have held the highest weights in the index during recent years are Apple, Microsoft, Amazon, Google, Facebook, Gilead Sciences, Intel, Cisco & Comcast.

The main sectors included in NASDAQ 100 are:

Technology – 53.48 %
Consumer Services – 24.63%
Health Care – 11.10%
Consumer Goods – 5.49%
Industrials – 4.33%
Telecom – 0.97%

Best Nasdaq 100 Forex Brokers

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How does Nasdaq work?

Nasdaq is very popular amongst tech-oriented companies and other large blue-chip companies. Some of the major stocks you can trade on Nasdaq are Apple, Amazon, Microsoft, Facebook, Tesla, and Intel. The Nasdaq exchange has the highest trading volume in the US, with over 3,000 listed companies.
Nasdaq trades both listed and OTC (over-the-counter) stocks; the stocks listed on Nasdaq tend to be volatile as most of them are highly growth-oriented. Nasdaq stock ticker symbols normally have 4-5 letters.
Since its inception, Nasdaq was designed to offer automated quotations. It has facilitated so many OTC transactions of the years that the name ‘Nasdaq’ became synonymous with ‘OTC’. Nasdaq eventually added automated trading systems and soon became the very first exchange to facilitate online trading.

What are Nasdaq’s trading hours?

Nasdaq opens at 9:30 am and closes at 4:00 pm ET Monday to Friday. It is closed on nine market holidays a year, such as New Year’s Day, Christmas, Good Friday, etc. Nasdaq also offers extended trading hours, known as pre-market and after-hours sessions. Pre-market trading hours are 4:00 am to 9:30 am. After-hours sessions are from 4:00 pm to 8:00 pm ET.

What are the listing requirements for the Nasdaq?

Naturally, Nasdaq will not list just any company on its’ exchange. In order to join the Nasdaq family, the company needs to have a solid reputation and fulfill certain important criteria. There are four sets of listing requirements. Depending on the set of listing requirements, the company’s stock will be allocated in one of the following three market tiers:

Capital Market: In this tier, there are stocks of companies with smaller market capitalizations.
Global Market: In this tier, there are stocks of companies listed in the United States and internationally, with mid-cap market capitalization.
Global Select Market: This tier is made up of the stocks of U.S. and international companies weighed based on market capitalization – so the crème de la crème of the business world. To be listed here, companies must pass Nasdaq’s highest listing requirements and maintain the criteria.

Nasdaq Listing criteria

The minimum threshold for issued shares: To be listed on Nasdaq, companies must have at 1,250,000 publicly traded shares outstanding, not including those held by officers, directors, or any other beneficial owners.
Minimum share price: At the time of listing, the regular bid price of a share of the company’s stock must be at least $4. It’s possible to qualify with a lower share price if the company fulfills other criteria.
Minimum shareholders: The company must have at least 2,200 total shareholders or 550 total shareholders with a 1.1 million average trading volume over the past year.
Application fee: To be considered for listing, the company must pay a $25,000 application fee. Should the application be successful, the company will pay somewhere between $150,000 and $295,000 as an entry fee.
Earnings: To be listed on Nasdaq, companies must have net earnings of at least $11 million in the last three years as well as no net losses in the last 3 years. Alternatively, they may have earnings of $2.2 million in the last two years.
Capitalization with cash flow: The company must have a cash flow of at least $27.5 million for the past three years, as well as no negative cash flow in any of those three years. In addition to this, the company’s average market cap must be at least $550 million in the last year.
Capitalization with revenue: If the company’s average market capitalization over the last year is $850 million or more, then it can be exempt from the cash flow requirement.
Assets with equity: Companies can avoid the cash flow and revenue requirements if their entire assets total at least $80 million and their stockholders’ equity is at least $55 million.

Methodology

All brokers listed on our website are regulated by at least one financial regulator and have never been reported as a scam. Our reviews and overall scores are based on the key areas above, in a combination with our opinion and commentary.

The reviews are shared and discussed with the brokers, but the authors of our website always have the final word. Furthermore, we always strive to keep the information on our website updated and relevant for our readers.

What helps us stand out is that we always test our brokers with an anonymous live account, to ensure we deliver the most accurate information and experience to our readers. Finally, our reviews and evaluation are always independent of any financial compensation we may receive from the brokers.

Risk Disclaimer

There is a very high degree of risk involved in trading securities.

With respect to margin-based foreign exchange trading, off-exchange derivatives, and cryptocurrencies, there is considerable exposure to risk, including but not limited to, leverage, creditworthiness, limited regulatory protection, and market volatility that may substantially affect the price or liquidity of a currency or related instrument. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable, or that they will not result in losses. Learn more at Wikipedia.

All investments involve risks and are not suitable for every investor. The value of securities may fluctuate and as a result, clients may lose more than their original investment. The past performance of a security or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk it does not assure a profit, or protect against the loss, in a down market.

There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing. More details here.

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