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Online stock trading is so common nowadays it is easy to forget that it’s a relatively recent occurrence, only beginning in the 1990s. What made the phenomenon possible in the first place was the establishment of the Nasdaq as the world’s first electronic stock market.
Nasdaq has now grown to become the world’s second-largest stock exchange in the world, with a market capitalisation of over $US20 trillion. At the same time, its Nasdaq Composite Index also commonly referred to as Nasdaq, is among the three most followed major stock indices in the world, along with the Dow Jones Industrial Average and the Standard & Poor’s 500.
Related: The Dow Jones Explained
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The Nasdaq: What Is It and What Does It Track?
History of the Nasdaq
The term Nasdaq was originally the acronym for the National Association of Securities Dealers Automated Quotations. It opened for business in 1971 as the world’s first electronic trading system after the US Securities and Exchange Commission (SEC) urged the National Association of Securities Dealers (now known as FINRA) to automate the market for securities not listed on other exchanges.
In 1992, the Nasdaq Stock Market joined hands with the London Stock Exchange to create the first capital markets linkage across continents. In 1998, it became the first stock market in the US to process online trades.
Nasdaq itself became a listed company via an initial public offering in 2002, and merged with Scandinavian exchanges operator OMX in 2007 to expand its global footprint. It now operates in 29 markets around the world and investors can trade stocks, derivatives, fixed income and commodities on its platform.
Types of Companies on the Nasdaq
More than 3,000 companies, including some of the world’s largest businesses, are listed on the Nasdaq stock exchange. Nasdaq has been at the forefront of adopting technological innovation on its trading platform, and this has in turn attracted many of the world’s leading companies in technology to the exchange.
The Nasdaq trades shares of different types of companies: capital goods, consumer durables, energy, finance, healthcare, public utilities, and so on. It is best known for a concentration of technology companies—particularly relatively new, high-growth firms such as Amazon, Apple, Google’s parent Alphabet and Facebook’s parent Meta.
As a result, the main Nasdaq Composite Index is often considered to be a good indicator of how well the tech market is performing.
The Nasdaq stock market is represented by two major indices. The first is the Nasdaq Composite index, popularly also called the Nasdaq, which includes almost all (more than 2,500) of the domestic and international stocks listed on the exchange.
It is a market capitalisation-weighted index, meaning companies with higher market value carry higher weight. These generally tend to be technology-focused.
The second important index is the Nasdaq 100, which is a modified capitalisation-weighted index made up of the 100 largest companies in market value that trade on the exchange. Again, while these companies cover a range of market sectors, the largest are generally technology-related.
Top Performing Companies on the Nasdaq
As of August 14, 2023, the Nasdaq Composite Index is trading at 13,788.33 points.
To be included in the index, a stock must be listed exclusively on the Nasdaq market (subject to some exemptions). It must also be a common stock of an individual company (including American Depositary Receipts, Real Estate Investment Trusts, etc.) and must fulfill basic financial criteria such as a stock price of at least $US1 and the value of outstanding stocks must total at least $US1.1 million.
Currently, some of the biggest companies listed on the index include:
- Apple Inc.
- Microsoft Corporation
- Alphabet Inc.
- Amazon.com, Inc.
- Nvidia Corporation
- Tesla Inc.
- Meta Platforms Inc.
- Broadcom Inc.
- ASML Holding NV.
- PepsiCo Inc.
- Costco Wholesale Corporation
- Adobe Inc.
- AstraZeneca plc
- Cisco Systems Inc.
- Netflix Inc.
- Advanced Micro Devices Inc.
- Comcast Corporation
- T-Mobile US Inc.
- Texas Instruments Inc
Nasdaq vs Dow Jones: Key Differences
Both the Nasdaq Composite Index and the Dow Jones Industrial Average are among the world’s most popular stock market indices, and are correlated. However, their degree of performance differs significantly over the same period. For example, so far in 2023 the Nasdaq is up more than 31%, while the Dow has gained only 6.3% in that period.
Market experts attribute this to the differing purpose and composition of the indices. The key differences between the two major indices can be summed up as follows:
Coverage: The Nasdaq Composite index typically tracks most companies listed on the Nasdaq stock exchange. It currently comprises more than 2,500 stocks. By comparison, the Dow Jones index is made up of just 30 stocks, so it provides a narrower representation of the massive US stock market.
Composition: The Nasdaq is a broad-based index made up of big and small stocks, but it’s biggest companies tend to be technology-focused resulting in heavy weightage for the sector, which tends to do well in a growing economy. The Dow Jones index tracks stocks of 30 companies that have an excellent reputation, a track record of sustained growth and wide interest among investors. This focus on high-quality, dividend-paying firms means the Dow tends to perform better in a slower economy and down markets.
Weighting: Like most popular indices, the Nasdaq is weighted by market cap. That means the weight of each company’s presence in the index matches its market capitalisation. Conversely, the Dow is a price-weighted index, meaning the weight of each company’s presence is determined by its absolute stock price, not its market cap.
Usage: The Nasdaq is considered to be a good barometer of how well the tech market is performing. Traders generally consider the Dow index as a vital indicator of the US economy’s momentum.
How To Invest In the Nasdaq in Australia
Australian can gain exposure to stocks listed on the Nasdaq stock exchange in any of the following ways:
Buy individual shares: It is possible to directly purchase shares listed on the Nasdaq, which may or may not be part of the Nasdaq Composite index, through a number of share brokers or online trading platforms.
Buy shares in a Nasdaq-focused ETF: A popular and effective way to invest in the Nasdaq is to buy into an exchange-traded fund which tracks either the Nasdaq Composite Index or the Nasdaq 100. For example, the Invesco QQQ Trust is the most popular ETF tracking the Nasdaq 100 index, while the Fidelity Nasdaq Composite ETF tracks the broader index on the exchange.
Buy Nasdaq futures contracts: While these are more suited to experienced investors, Nasdaq 100, E-mini Nasdaq 100 and Micro E-mini Nasdaq futures contracts can be purchased via the CME Group’s Chicago Mercantile Exchange.
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What are the Nasdaq Trading Hours?
The Nasdaq stock exchange conducts its normal trading session starting 9.30 am EST weekdays (which is either 11.30am AEST or 1.30am AEDT) until 4 pm EST (either 5am AEST or 7am AEDT).
In addition, the exchange conducts a pre-market extended hours trading session from 7.00 am EST to 9.30am EST, and a post-market extended hours trading between 4pm EST to 8pm EST.
Frequently Asked Questions (FAQs)
What does Nasdaq stand for?
Nasdaq was originally the acronym for the National Association of Securities Dealers Automated Quotations.
What is Nasdaq 100 made up of?
The Nasdaq 100 index is made up of the 100 largest companies in market value that trade on the Nasdaq exchange.
Where is the Nasdaq stock exchange located?
Nasdaq is an American stock exchange based in New York City.
How many companies are on the Nasdaq?
More than 3,000 companies are listed on the Nasdaq stock exchange. The Nasdaq Composite index, popularly also called the Nasdaq, includes most (more than 2,500) but not all of the stocks listed on the exchange. This number keeps changing based on the eligibility criteria.
