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The NASDAQ Market: Everything You Need To Know

When talking about trading or investing, the term NASDAQ always comes up. It is short for National Association of Securities Dealers Automated Quotations. It is the hub for many investable and tradable securities. As a financial center, it undergoes regulation from FINRA.The Nasdaq

What Is the NASDAQ?

NASDAQ began its operations in February 1971, founded by the NASD. At the time, it was revolutionary as it allowed investors to trade securities using a computer. It was a much faster method compared to the traditional way of contacting brokers.

As the world’s first global electronic exchange, it became the home to many global technological giants. Big names like Google, Facebook, and Amazon are all present in NASDAQ. In recent years, it also began introducing other forms of assets. NASDAQ operates 25 markets, with one clearinghouse and five central securities depositories.

Over 3,000 stocks are a part of the NASDAQ exchange, with it growing every year. The market later separated from the group to become a more transparent exchange. Later on, it merged with the Scandinavian company OMX to make NASDAQ accessible to more countries. The trading various assets available in NASDAQ include:

  • Derivatives
  • Options
  • Futures
  • Commodities
  • Cryptocurrencies

The creation of NASDAQ transformed the entire investing and trading space. Since transactions could now happen on a computer, the market became dynamic. NASDAQ is one reason why technology companies became accessible, leading to faster growth.

NASDAQ has survived many global crises, making it a resilient marketplace. It has gone through the dot-com bubble, the 2008 recession, and the recent COVID-19 Pandemic.

NASDAQ Vs. Dow Vs. NYSE

The Dow, much like the NASDAQ, are both market indexes. They represent a group of stocks in a particular field. NASDAQ focuses more on technology companies, while the Dow lists most companies on the New York Stock Exchange. The difference is that the NASDAQ is both an index and an exchange, while Dow is just an index.

When compared to the NYSE, both it and NASDAQ are trading exchanges. NASDAQ is electronic and does not have a physical trading space with brokers like the NYSE. Since the NYSE Is the oldest exchange in America, it retains much of its traditional methods, like the physical trading floor. NYSE doesn’t have an index like NASDAQ.

What Can You Trade on NASDAQ?

You can find the stocks of major technology companies on NASDAQ. You’ll often see popular names like Amazon, Tesla, and Microsoft pop up regularly. However, NASDAQ trading is not limited to that, as stocks from other industries often make it there as well. Companies like Starbucks and Pepsi are present, along with many others.

The security must register with the SEC to get a listing on NASDAQ. They must also justify their finances, liquidity, and governance as within the requirements for listing. It means that the company must be of sufficient size and supported by at least three market makers. There are four categories of assets, separated by market capitalization:

Global Select Market: This market consists of U.S. and international stocks. They have the most market capitalization.
Global Market: This market consists of international and U.S. stocks. They are within the mid-cap market capitalization range.
Capital Market: This market is about smaller capitalization companies. Most new launches start here.
American Depository Receipt (ADR): ADR allows you to trade in foreign markets without owning the native currency. NASDAQ buys a bundle of shares to sell on the exchange.

NASDAQ has a screener which contains all the stocks tradeable on the exchange. Unlike the NYSE, trading on NASDAQ is fully automated and computerized. You can trade stocks and assets from every region and country which has open doors to trading, dealing with NASDAQ themselves. Here are some of the sectors that traders can participate in:

  • Technology
  • Health Care
  • Transportation
  • Consumer Services
  • Energy
  • Finance
  • Basic Industries

NASDAQ also recently opened its doors to companies connected to more volatile assets. One of the most recent examples is the listing of the cryptocurrency exchange Coinbase. It was a decision that many deemed controversial, especially traditional investors. You also have the option of trading the NASDAQ 100 index.

The NASDAQ 100 index is a basket of the 100 biggest and most active stocks listed in the exchange. It is an amalgamation of different sectors. The index changes over time, depending on the performance of the 100 stocks within. To trade the NASDAQ 100, you speculate that all the top 100 stocks will have a general upward or downward movement.

How To Start Trading on the NASDAQ Market

To be able to trade the NASDAQ market, you need a broker. A broker is a company that acts as the middleman, as they have authorization to trade the market. Through them, they can place orders that allow you to buy or sell stocks. Many brokers are available, and many traders consider the broker to be one of the most crucial parts of the puzzle.
Back then, only companies and high net worth individuals could trade on NASDAQ. The broker changes that by becoming the qualified entity that can execute actions on their client’s behalf. As such, many brokers can allow you to open an account as low as $500 or $1000.

The best thing to do is to compare brokers, check reviews, and see what professionals are using. Some broker platforms seem enticing at first, but they can hit hard with wide spreads and high fees. Other brokers only offer you the best features if you deposit more money. Opening a brokerage account is a commitment and takes some time as you’ll need to verify your identity.

After opening an account, you’ll be free to download software that allows you to trade stocks. The software will have a ticker, and you can search for what you want to buy. You’ll open the stock chart and see price movement represented by lines or bars.

Then, you can buy stocks by setting the number of shares you want to buy. As long as your account has enough money to buy that amount, the transaction will go through.

Considerations When Trading

When you press the buy button, a trade can go up or down. Depending on when you exit that trade, it can result in a profit or loss. When you look at charts, it can be easy to say that a stock goes up over time. However, seeing it in hindsight and experiencing it are two very different things.

When you are trading, you have to understand when you want to exit. You’ll have potential areas to exit the trade. One is a price point where you are happy to take profits. The other is where you have to leave before the loss becomes unacceptable. Most traders zero their accounts because they don’t understand they have to apply a stop loss.

You’ll also have to determine what type of trader you are. All of this depends on your personality and your risk profile.

Scalping: Scalping is about taking profit in short movements of the market. These usually happen on shorter time frames like the one-minute or five-minute charts.
Day trading: Day trading tries to take profit within the day. They often examine the 15-minute, 30-minute, and one-hour charts.
Swing trading: Swing trading is about taking profit in each upward swing of the market. Traders usually trade the one-hour to four-hour charts, but trades can last for days or weeks.
Position trading: Position trading is about profiting over the long term. These traders hold a position for weeks or months before exiting. Position traders are often closer to investors. They buy and hold, expecting the price of a stock to go up over time.

Another thing you’ll have to consider is your trading plan. You have to have a plan set on trading. It includes the strategy you want to use and how to apply it. It will also likely have contingency plans depending on different scenarios as you’re trading.

Many professional traders will attest to the inherent difficulty with trading. The learning curve is steep, and it requires a lot of willpower to remain consistently successful. The reason is that many people are not ready to handle a string of losses which can lead to emotional trading.
Rarely do any new traders get into professional trading fast. Another issue the stock trading space has is the multitude of information available. Many of those who want a trading career have more success working with an established company. Another option is to seek a teacher who has already navigated the market to success.

The Future of NASDAQ

NASDAQ is one of the most established electronic trading exchanges in the world. Because of this fact, it remains a reliable option for both traders and investors. Every year the NASDAQ index changes — though most years are positive. The exchange also grows with new listings. Since 2016, NASDAQ has earned over $200 million in revenue from listings alone.

The expectation is that NASDAQ will continue to grow over time. Some years will consolidate or draw down as with the occasional bear markets. NASDAQ has continued in growth, rewarding those who continuously believe in it.