What is NASDAQ Index and when did it start?: NASDAQ stands for the National Association of Securities Dealers Automated Quotations.
It is an American stock market that handles electronic securities trading around the world.
What is NASDAQ Index?
- NASDAQ is an electronic stock exchange where all investors can buy as well as sell through an automated computer network.
- The index was founded in 1971 by the National Association of Securities Dealers (NASD), which is now known as the Financial Industry Regulatory Authority (FINRA).
- On February 8, 1971, the index began its operations as the world’s first electronic stock market.
- There are more than 3300 companies that are traded publicly on the NASDAQ exchange.
- NASDAQ is considered very unique because it has its main focus on high-tech companies.
NASDAQ Composite Index:
The NASDAQ Composite is the stock market index that will consist of the shares that are listed on the NASDAQ stock exchange.
The following should be mandatory on the NASDAQ exchange:
Also Read: How to invest in NASDAQ from India?
- A majority of investors consider NASDAQ as a tech-heavy stock index.
- There are times when the index is very difficult to understand in terms of its composition as well as how it works.
- The index is the most widely followed stock index in the United States, and it is usually one of the three headline indexes, along with the Dow Jones Industrial Average and the S&P 500.
- NASDAQ has its main focus on the technology sector, which is generally considered to be a very young as well as fast-growing sector.
- The NASDAQ Composite Index is often considered to be a very good barometer of how well the tech market is performing.
How does the NASDAQ Composite Index work?
- The NASDAQ composite is weighted by the market capitalization of its underlying components.
- This will mean that when the larger companies’ stocks move, it will have a greater effect on the performance of the index than on the movement of stocks of the smaller companies.
- Let us understand this with an example where a NASDAQ listed common stock with a $ 200 billion market cap will have twice the influence on the index than a company with a $ 50 billion market cap, after assuming an equal movement in both the stock prices.
- The level of the NASDAQ Composite Index will fluctuate continuously during the trading hours.
The entire makeup of the NASDAQ Index:
- NASDAQ Index is the second largest stock exchange in terms of securities values and is the largest electronic stock exchange.
- The index comprises more than 3300 companies that are traded publicly.
The index trades in several different types of companies, like:
Also Read: What is Index Trading?
- Even after trading in several companies, it is very well known for its high-tech stocks.
- Companies are required to meet specific financial criteria to be listed on the NASDAQ National Market (NASDAQ-NM).
The following are the criteria:
- There are also smaller businesses that are unable to meet the above requirements.
- For them, the NASDAQ Small Caps are available.
- The index will thereby shift companies from market to market as per the eligibility changes.
How many companies are on NASDAQ?
- As of March 2022, there are 3626 NASDAQ listed securities, but as we previously described, not every security is included in the NASDAQ Composite Index.
- According to the fact sheet for the Fidelity NASDAQ Composite Index Fund (NASDAQMUTFUND:FNCMX), a mutual fund that tracks the index, there were a total of 3417 different stocks that were issued by 3365 companies in the index as of December 31, 2021.
- The top 10 stocks in the NASDAQ Composite Index account for about 47% of the entire index performance.
Also Read: What are Stock Market Indices ?
Let us look at the top 20 largest stocks in the index:
|Sr. No.||Stock Name|
|7||Alphabet (A shares)|
History of NASDAQ Index:
- NASDAQ was founded on February 8, 1971, by the NASD.
- The index is the world’s first electronic stock market and began by trading in more than 2,500 over-the-counter (OTC) securities.
- At first, there was no actual trading taking place between the buyers and sellers.
- Instead, the NASDAQ evened the traders’ odds by narrowing the spread between the bid price and the ask price of the stocks.
Here are some of the notable dates on the NASDAQ timeline:
|1975||The index invents the modern IPO by listing the venture-capital-backed companies. This will also allow the underwriting syndicates to trade as market makers.|
|1985||The index created the NASDAQ-100 index.|
|1996||The first exchange website went live: https://www.nasdaq.com/|
|1998||The index merges with the American Stock Exchange to form the NASDAQ-AMEX market group. AMEX was then acquired by NYSE Euronext in the year 2008 and its data was integrated into the NYSE.|
|2000||The members of NASDAQ voted to restructure and then spin off NASDAQ into a publicly traded shareholder-owner for-profit company: NASDAQ Stock Market Incorporation.|
|2007||The index acquires OMX, a Swedish-Finnish financial firm, and then changed its name to NASDAQ OMX group. NASDAQ OMX then buys the BOSTON Stock Exchange.|
|2008||NASDAQ OMX purchased the Philadelphia Stock Exchange which is also the oldest stock exchange in the US.|
|2009||NASDAQ OMX created a mobile version of nasdaq.com.|
Why is the NASDAQ important?
- The exchange is considered important because it was the very first exchange that could offer investors the ability to trade stocks transparently via an automated system.
- The NASDAQ’s automated trading has been commonplace among the other exchanges, but the same remains unique because of the main focus on high-tech companies.
- The index is also important because it is easier for companies to list on this exchange than others such as NYSE.
- Through this, more businesses become publicly listed so that investors can buy as well as sell their shares.
- The index also offers investors a good way to invest in much more volatile markets and potentially higher growth securities than the other exchanges that will offer more stable as well as conservative companies.
What are the NASDAQ trading hours?
- The NASDAQ stock market is open on weekdays from Monday to Friday and is closed on Saturday and Sunday.
- The market opens at 9:30 a.m. Eastern time.
- The regular trading session continues for six and a half hours and will close after the closing bell rings at 4 P.M. eastern time.
- The index has also got pre-market and after-market hours.
They are as follows:
What is NASDAQ 100?
- After NASDAQ, there is another index that is widely followed, which is the NASDAQ 100.
- This index is also based on the market capitalization weight and is often confused with the NASDAQ composite.
- The NASDAQ 100 includes the stocks of the 100 largest non-financial companies listed instead of all the common stocks that are listed on the NASDAQ exchange.
- These 100 companies in the NASDAQ 100 make up more than 90% of the weight of the NASDAQ Composite Index.
Who should invest in the NASDAQ Composite Index?
- The billionaire Warren Buffet, who is also considered to be the most successful stock investor, has stated that index funds are the best investment choice for the majority of Americans.
- He further added that if you have the time as well as the desire to invest in individual stocks, then you can do so, but if you don’t have the time, there’s nothing wrong with putting your investment portfolio on autopilot mode with index funds.
The above blog is all about NASDAQ and when it started with the entire history of the exchange.
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