NASDAQ

How NASDAQ Works

NASDAQ operates through a sophisticated electronic trading system that matches buy and sell orders in real-time across a distributed network of market participants. Unlike traditional exchanges with physical trading floors where specialists manually facilitate trades, NASDAQ uses advanced computer algorithms, automated order matching engines, and competing market makers to facilitate transactions with remarkable speed and efficiency. Market makers are key participants who provide liquidity by continuously quoting bid and ask prices for the stocks they cover. These firms, which include major financial institutions and specialized trading firms, profit from the spread between their buying and selling prices while committing capital to ensure investors can always execute trades even during volatile market conditions when natural buyers and sellers are scarce. The exchange supports a comprehensive variety of order types including market orders, limit orders, stop orders, and more sophisticated algorithmic order types designed for institutional traders. All orders flow through NASDAQ's matching engine, which processes them according to price-time priority rules, typically in microseconds. The exchange offers extended trading hours spanning from 4:00 AM to 8:00 PM Eastern Time, providing pre-market and after-hours trading sessions that give investors additional flexibility to react to news and events outside regular market hours. NASDAQ operates multiple listing tiers with different requirements. The NASDAQ Global Select Market represents the highest tier with the most stringent listing standards. The NASDAQ Global Market and NASDAQ Capital Market serve mid-sized and smaller companies respectively. The exchange also licenses the NASDAQ-100 index, tracking the 100 largest non-financial companies, which serves as the basis for numerous ETFs and derivatives products.

NASDAQ vs. NYSE

NASDAQ and NYSE represent different approaches to stock exchange operations, each with distinct advantages.

Important Considerations for NASDAQ

Several factors should be considered when trading or listing on NASDAQ: Market Maker Reliance: Liquidity depends on market maker participation, which can vary by stock and market conditions. During periods of extreme volatility, market makers may widen spreads or reduce quote sizes. Technology Focus: Exchange caters to technology and growth companies, creating sector-specific volatility patterns. NASDAQ can experience amplified moves during tech earnings season or regulatory changes affecting the technology sector. Extended Hours: Pre-market and after-hours trading provides flexibility but with lower liquidity and wider spreads. Significant price gaps can occur between sessions, creating both opportunities and risks. Listing Requirements: Companies must meet specific financial and corporate governance standards to list. NASDAQ offers three listing tiers with progressively stringent requirements. Trading Costs: Electronic trading can result in lower commissions but may include other fees such as exchange access fees and data charges. Regulatory Oversight: Subject to SEC regulations and exchange-specific rules affecting trading practices, including Rule 611 for trade-through protection. Innovation Leadership: NASDAQ continues to pioneer new trading technologies and market structures, including cloud-based market infrastructure and blockchain settlement initiatives.

NASDAQ Listing Tiers

NASDAQ operates three distinct listing tiers, each with different requirements and prestige levels: NASDAQ Global Select Market: The highest tier with the most stringent listing standards. Companies must demonstrate strong financial metrics, including minimum market cap of $550 million, minimum revenue of $110 million over the trailing twelve months, and robust corporate governance practices. This tier includes most of the largest and most liquid NASDAQ-listed companies. NASDAQ Global Market: The mid-tier market for established companies that meet substantial but less demanding requirements than the Global Select. Companies need a minimum market cap of $75 million, three market makers, and at least 1.1 million publicly held shares. NASDAQ Capital Market: Designed for smaller emerging companies with growth potential. Entry requirements include minimum stockholders equity of $5 million, 300 round-lot shareholders, and 1 million publicly held shares. This tier provides smaller companies access to public capital markets while they grow. Companies can move between tiers as their financial profiles change, with upgrades to higher tiers often viewed positively by investors.