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Nasdaq: definition, history, and facts
GlossaryWhat is the Nasdaq?
The Nasdaq is an American stock exchange and one of the largest stock exchanges in the world. It primarily trades stocks of technology companies. It is the world’s first electronic stock exchange (screen-based exchange) where transactions are processed completely automatically by computers.
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What does the abbreviation Nasdaq stand for?
Nasdaq, often also written as NASDAQ, is an abbreviation for the term ‘National Association of Securities Dealers Automated Quotations’. In English, this roughly translates to: ‘Automated price setting of the national association of securities dealers’. The name perfectly describes what the stock exchange does: it is a fully digital system that automatically displays and trades stock prices. Consequently, no physical trading floor is needed.
The history of the Nasdaq
The Nasdaq was founded in 1971 by the National Association of Securities Dealers (NASD). This was a revolutionary founding because the exchange used computers and automated systems. This resulted in much more efficient and transparent trading.
From the 1980s, the Nasdaq grew rapidly. It became the preferred exchange for emerging technology companies like Apple and Intel Corporation. In 1981, the NASDAQ traded 37% of the total volume of American securities. By 1991, this rose to 46%. In 1992, the first intercontinental collaboration even took place with the London Stock Exchange.
After the turn of the century, in 2006, the Nasdaq separated from the NASD and became a national stock exchange. In 2008, Nasdaq merged with OMX and became the Nasdaq OMX Group. In 2015, the company changed its name to Nasdaq Inc.. Today, Nasdaq is the second-largest stock exchange in the world after the New York Stock Exchange (NYSE).
What is the purpose of the Nasdaq?
The main goal of the Nasdaq is to offer investors an efficient trading platform where they can easily trade securities. This ensures fair pricing and liquidity.
For companies, Nasdaq makes it possible to raise capital through a stock market listing, allowing them to grow and innovate. With transparent rules and processes, Nasdaq increases confidence in the market and contributes to stronger economies and equal opportunities for all participants.
Nasdaq indices: Nasdaq-100 and Nasdaq Composite
The Nasdaq has several indices. The most important are the Nasdaq-100 and the Nasdaq Composite.
Nasdaq-100 index
The Nasdaq-100 index is a weighted average of the prices of the 100 largest non-financial companies listed on the Nasdaq. These include Apple, Microsoft, Amazon, and Tesla. The index was launched in 1985 with a starting value of 250. Every year in December, the composition and weighting of the stocks are redetermined based on market capitalisation, similar to the AEX.
Nasdaq Composite index
The Nasdaq Composite index tracks the price development of over 3,000 companies listed on the Nasdaq. When ‘the Nasdaq’ is mentioned in the media, it usually refers to this index. The Composite started in 1971 with 100 points.
How many companies are on the Nasdaq?
The number of companies on the Nasdaq depends on the index.
The Nasdaq Composite includes more than 3,000 companies. Of that number, Microsoft, Amazon, and Apple are part of the Composite. The Nasdaq-100 includes the 100 largest non-financial companies, with players like Netflix, Adobe, and Starbucks.
The calculation method of the Nasdaq
Both the Nasdaq Composite and the Nasdaq-100 are market capitalisation-weighted indices (market cap). Companies with a higher market value consequently have a heavier weighting on the index value than smaller companies.
Why is the Nasdaq used?
The Nasdaq functions as an important market indicator, particularly for the performance of technology companies and growth stocks. Investors worldwide follow the Nasdaq to understand market trends and assess economic prospects. It provides a clear reference for how innovative companies and the broader stock market are developing.
Investing in the Nasdaq
You can invest in the Nasdaq through various investment products: stocks, ETFs and investment funds, options, futures and CFDs.
- Investing in stocks: Buy individual stocks directly from companies listed on the Nasdaq, such as Apple or Tesla.
- Investing in ETFs and investment funds: Invest in dozens or hundreds of companies at once, which ensures a diverse portfolio and low transaction costs.
- Investing in options: Buy or sell stocks without obligation at a predetermined price on or before a certain date (expiration date).
- Investing in futures: Agree (obligatorily) with the other party to buy or sell a fixed quantity of the underlying asset at a set time.
- Investing in CFDs: Speculate on price movements of assets (such as stocks or indices) without physically owning them.
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All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
