Learn all you need to know about trading and investing in NASDAQ stocks with our handy guide.
What is the NASDAQ?
NASDAQ stands for National Association of Securities Dealers Automated Quotations. The NASDAQ is a United States stock market specializing in the shares of technology companies. It is the first electronic stock market in the world, operating without a physical trading floor.
The NASDAQ Composite and the NASDAQ 100 index are among the US's most widely followed stock indices.
The NASDAQ Composite stock market index contains over 3,700 companies, making it one of the world's largest market indices. The stock must be exclusively listed on the NASDAQ to feature in this index. The NASDAQ Composite does not contain preferred stocks and ETFs, but it holds American Depositary Receipts (ADRs), Real Estate Investment Trusts (REITs) and limited partnership shares.
The NASDAQ 100 consists of the top 102 NASDAQ-listed equities weighted by market capitalization.
Some of the world's largest companies, including Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Meta (NASDAQ: META), and Alphabet (NASDAQ: GOOG), feature in the NASDAQ stock market making both indices top-heavy. Indeed, the companies in the NASDAQ 100 account for over 90% of the weight of the NASDAQ Composite Index.
Who Owns NASDAQ Stocks?
NASDAQ stocks are owned by institutions, mutual funds, company insiders, and retail investors.
Top NASDAQ stockholders include The Vanguard Group, Inc., Borse Dubai, Ltd., BlackRock Institutional Trust Company, Capital World Investors, and MFS Investment Management.
Most NASDAQ shareholders are North American, with Europe the second largest ownership profile, followed by Asia Pacific, Africa, and the Middle East.
While you can invest in the individual stocks listed on the NASDAQ, a more straightforward way to start investing in the NASDAQ is via index funds. There are many funds based on the NASDAQ Composite and NASDAQ 100.
A very popular NASDAQ index fund is the Invesco Unit Investment Trust QQQ ETF (QQQ) which tracks the NASDAQ 100. And Fidelity's NASDAQ Composite Index ETF (ONEQ) is another highly traded fund.
In 2002 Nasdaq Inc (NASDAQ: NDAQ) was listed as a public company. This means you can also invest directly in the company itself rather than the stocks listed on the exchange.
Nasdaq, Inc. operates as a stock exchange. The company provides trading, clearing, exchange technology, regulatory, securities listing, analysis, investing tools and guides, and financial and information services. Nasdaq offers its services worldwide.
What Type of Investors Own NASDAQ Shares?
Growth investors are by far the largest investor type owning NASDAQ shares. Deep value investors and VC Private Equity investors are the least represented ownership type.
How does the NMS relate to the NASDAQ?
The National Market System (NMS) governs all equity trading undertaken on formal US stock exchanges.
The NMS refers to over-the-counter trading. This is a system of trading OTC stocks under the sponsorship of the National Association of Securities Dealers (NASD) – currently known as FINRA.
A stock must meet size, profitability, and trading activity criteria to be eligible to trade on an NMS exchange. This helps to reduce shareholder risk.
Equity trade information such as high, low, and last-sale prices, cumulative volume figures, and bid and ask quotations throughout the day are usually available for NASDAQ stocks. This is because market makers must report the actual price and number of shares in each transaction within 90 seconds. Non-NMS stocks are not reported in real-time.
Pros and Cons of Investing in NASDAQ Stocks
The NASDAQ market is the place for investors who like technology stocks, innovation and the latest growth theme. It gives an elevated sense of importance to businesses listed there and gives investors the opportunity to own a piece of a promising business.
Like any investment, NASDAQ stocks come with advantages and disadvantages.
Pros of NASDAQ investing
Access to Interesting Equities: NASDAQ stocks are hugely varied and interesting, covering companies from all sectors and industries. It also gives you access to many foreign country equities and investments.
Liquidity: There is usually plenty of liquidity in NASDAQ-listed equities making this an active environment for trading.
Big-Names Started Small: Buying a stock early is key to making significant gains. Many NASDAQ stocks are high-growth companies with exponential potential.
Broad Mix of Stocks: The NASDAQ includes companies of all sizes, from micro-cap to mega-cap.
Lower Costs: For the companies choosing to list on the NASDAQ, the listing costs are lower than that of other exchanges.
Cons of NASDAQ investing
Volatility: As many NASDAQ stocks are speculative growth stocks, volatility can be off-putting to some investors.
Risk: Smaller NASDAQ stocks are often riskier investments in speculative technology areas such as biotech, life sciences, and semiconductors.
How to Purchase NASDAQ Stocks
If you would like to purchase shares in a NASDAQ-listed company, here are the steps to follow:
Fix Your Budget
A NASDAQ investment could be speculative, and you shouldn't invest what you can't afford to lose. Size your position carefully in a diversified portfolio.
Choose Your Broker-Dealer
Most well-known brokerage firms offer NASDAQ trading. You may find your usual broker offers the stock you want, or you can shop around. Comparing fees to get the best value for money on your deal is wise. If you only want to trade occasionally or in small amounts, you may find a fee-free broker or one that offers fractional trading.
Fund your account
To trade NASDAQ stocks, you need to fund your account. This is usually very straightforward using a credit/debit card or even PayPal.
Buy your NASDAQ stock.
When buying NASDAQ stocks, you'll have the option for market or limit orders when you place the trade. Then press the buy button.
If you enjoyed our How to Buy NASDAQ Stocks guide, you may like to learn How to Buy OTC Stocks.
Short History of the NASDAQ
Founded in 1971, the NASDAQ stock market was created by the National Association of Securities Dealers (now known as the Financial Industry Regulatory Authority (FINRA)).
American businessman Gordon S. Macklin was the first President and CEO of the NASDAQ from 1971 to 1987.
In the early days, the NASDAQ was originally an electronic quotation system providing bid and ask prices.
In 2002, the publicly traded Nasdaq Inc (NASDAQ: NDAQ) was established.
In 2006, NASDAQ became an SEC-registered national securities exchange.
In 2007, NASDAQ merged with the Scandinavian exchange group OMX to become the NASDAQ OMX group.
Nasdaq, Inc. engages in trading, clearing, exchange technology, regulatory, securities listing, information, and public and private company services. It operates through the following segments: Market Technology, Investment Intelligence, Corporate Platforms, and Market Services.
Market Technology: a global technology solutions provider and partner to exchanges, clearing organizations, central securities depositories, regulators, banks, brokers, buy-side firms, and corporate businesses.
Investment Intelligence: includes Nasdaq Inc's Market Data, Index, and Analytics businesses.
The Market Data business sells and distributes historical and real-time market data to the sell-side, the institutional investing community, online retail brokers, proprietary trading shops, other venues, Internet portals, and data distributors.
The Index business develops and licenses Nasdaq-branded indexes and financial products. The Analytics business provides asset managers, investment consultants, and institutional asset owners with investment insights and workflow solutions.
Corporate Platforms: includes the company's Listing Services and IR & ESG Services businesses. These businesses deliver critical capital market and ESG solutions across the lifecycle of public and private companies.
Market Services: consists of the Equity Derivative Trading and Clearing, Cash Equity Trading, FICC, and Trade Management Services businesses. It operates multiple exchanges and other marketplace facilities across several asset classes, including derivatives, commodities, cash equity, debt, structured products and ETPs.
Nasdaq Inc is headquartered in New York.