Nasdaq Stock Exchange Explained
What Is the Nasdaq?
Nasdaq stands for the National Association of Securities Dealers Automated Quotations. It was created in 1971 by the NASD (now FINRA) as an electronic quotation system — the first of its kind. Before Nasdaq, over-the-counter stocks were traded by phone, with prices communicated verbally between dealers. Nasdaq automated that process, displaying real-time quotes on computer screens.
Today, Nasdaq Inc. is a publicly traded company (ticker: NDAQ) that operates the Nasdaq exchange, the Nasdaq Nordic and Baltic exchanges, and provides market technology services to over 130 exchanges worldwide. Don’t confuse the Nasdaq exchange with the Nasdaq Composite or Nasdaq-100 indexes — the exchange is where stocks trade; the indexes are benchmarks that track subsets of those stocks.
Nasdaq Listing Tiers
Nasdaq has three listing tiers, each with different requirements:
| Tier | Companies | Min. Market Cap | Key Requirements |
|---|---|---|---|
| Nasdaq Global Select Market | ~1,500 (elite tier) | Variable (highest) | Strictest financial and governance standards |
| Nasdaq Global Market | ~1,000 | $75 million | Mid-level requirements |
| Nasdaq Capital Market | ~1,000 | $15 million | Lowest entry point, for smaller/emerging companies |
Most of the household-name tech stocks trade on the Global Select Market. The Capital Market tier serves as an entry point for smaller companies, including many biotech startups and SPACs.
How Does Nasdaq Trading Work?
Nasdaq is a fully electronic dealer market. Instead of a single Designated Market Maker (like the NYSE), Nasdaq uses multiple competing market makers for each stock. These market makers post bid and ask prices electronically and compete to offer the best prices, which theoretically leads to tighter spreads and better execution.
The exchange processes orders in microseconds through its INET matching engine. Nasdaq also operates extended-hours sessions identical to the NYSE’s pre-market (4:00 AM ET) and after-hours (until 8:00 PM ET) windows.
Nasdaq vs. NYSE
| Feature | Nasdaq | NYSE |
|---|---|---|
| Founded | 1971 | 1792 |
| Trading model | Fully electronic, dealer market | Hybrid (electronic + floor DMMs) |
| Physical floor | No (MarketSite studio in Times Square, but no trading floor) | Yes (11 Wall Street) |
| Listed companies | ~3,500 | ~2,400 |
| Total market cap | ~$22+ trillion | ~$25+ trillion |
| Typical listings | Tech, biotech, growth | Blue chips, financials, industrials |
| Listing fees | Lower | Higher |
| Market makers | Multiple competing per stock | One DMM per stock |
Why Do Tech Companies Choose Nasdaq?
The Nasdaq became the de facto home of technology companies starting in the 1980s when Microsoft, Intel, and Apple chose to list there. The reasons were practical: Nasdaq’s electronic system was faster and cheaper than the NYSE’s floor-based model, and its lower listing fees appealed to younger, capital-hungry companies. Once a critical mass of tech firms listed there, a self-reinforcing network effect took hold — tech companies list on Nasdaq because that’s where tech companies list.
Key Takeaways
- Nasdaq is the world’s first electronic exchange and second-largest globally by market cap (~$22+ trillion).
- It operates entirely electronically — no physical trading floor — using multiple competing market makers.
- Three listing tiers: Global Select Market (elite), Global Market (mid), and Capital Market (entry-level).
- Nasdaq is the home of Big Tech: Apple, Microsoft, Amazon, Alphabet, Meta, NVIDIA, Tesla.
- Lower listing fees and its tech-company network effect keep it the preferred venue for growth and innovation companies.
Frequently Asked Questions
Is Nasdaq only for tech stocks?
No. While Nasdaq is heavily associated with technology, it lists companies across all sectors — including Costco (consumer staples), Starbucks (consumer discretionary), Amgen (healthcare), and PepsiCo (consumer staples). However, tech and biotech do account for a disproportionate share of Nasdaq listings.
What is the difference between Nasdaq the exchange and the Nasdaq Composite?
Nasdaq the exchange is the marketplace where stocks are bought and sold. The Nasdaq Composite is an index that tracks the performance of virtually all stocks listed on that exchange. The Nasdaq-100 is a narrower index of the 100 largest non-financial Nasdaq stocks. When media says “the Nasdaq,” they mean the index, not the exchange.
Can a company be listed on both NYSE and Nasdaq?
No — a company’s primary listing is on one exchange. However, a company can transfer its listing from one to the other. Some companies have dual listings on foreign exchanges (e.g., listed on Nasdaq in the U.S. and on the London Stock Exchange in the UK).
What are Nasdaq listing fees?
Annual listing fees range from roughly $46,000 to $167,000+ depending on the tier and number of shares outstanding. Entry fees for a new listing (including IPO fees) can range from $50,000 to $295,000. These are generally lower than NYSE fees, which has been a competitive advantage for attracting smaller and mid-size companies.
What happens if a Nasdaq stock falls below $1?
Nasdaq requires listed stocks to maintain a minimum bid price of $1.00. If a stock trades below $1 for 30 consecutive business days, the company receives a deficiency notice and has 180 days to regain compliance. Failure to comply can lead to delisting. Many penny stocks perform reverse stock splits to avoid this fate.