History, function and influence in the financial world

Read on to learn more about the history and future of the Nasdaq, what sets it apart from the history of other major markets’ stock exchanges, and what you need to know as an investor to use this exchange effectively.

The history of Nasdaq

Nasdaq was founded by the National Association of Securities Dealers (NASD) on February 8, 1971. It was the world’s first use of the electronic market model, introducing a computerized trading system that allowed for faster and more efficient trading than the traditional market equity. based exchanges.

The Nasdaq grew rapidly during the 1980s and 1990s, particularly during the dot-com boom of the late 1990s. Many technology companies, particularly those in the Internet and software industries, have chosen to list on the Nasdaq, earning a reputation as a hub for innovative, high-growth companies. Today, the Nasdaq is informally known as the “tech stock market,” a nod to its greater concentration of tech startups.

Over time, the Nasdaq has undergone various regulatory changes and improvements to strengthen market integrity and increase investor confidence. It instituted a list of requirements that companies must meet to be listed, similar to those required by the NYSE for companies to “go public.” It also created several market indexes, including the Nasdaq Composite Index, which tracks the performance of all publicly traded stocks.

How Nasdaq works

If you’ve ever used an online broker to buy or sell stocks, you already know the basics of how the Nasdaq works. The Nasdaq operates as an electronic trading platform where securities trades are executed electronically through computerized systems. This eliminates the need for physical trading floors and allows for faster and more efficient transactions. It also makes the market more accessible: thanks to the single framework established by Nasdaq, you can trade from all over the world as long as you have online access.

The Nasdaq stock exchange uses a central processing system to execute, track and manage trades. This centralized model improves transparency and price discovery by consolidating trading activities into a single platform. Orders placed on Nasdaq are automatically matched based on price and time priority. This means that the best available buy order is matched to the best available sell order, ensuring efficient order execution, minimized spreads and fewer delays.

Before introducing Nasdaq’s electronic trading model, traditional exchanges relied on the trading floor, where traders physically gathered in a trading floor to execute orders. In contrast, Nasdaq’s electronic model eliminates the need to trade in a physical location, allowing for faster order processing and accessibility to a global audience. After the introduction of this model, other exchanges followed and introduced their own online marketplace.

The importance of the Nasdaq composite index

If you want to quickly understand the direction the Nasdaq is moving on any given day, look at the Nasdaq Composite Index. The Nasdaq Composite Index is a market capitalization-weighted index comprising more than 2,500 stocks listed on the Nasdaq exchange. Some big names included in the index that you may be familiar with include Apple NASDAQ:AAPL, Microsoft NASDAQ:MSFT AND Tesla NASDAQ:TSLA.

With so many high-profile companies, it’s easy to see why the Nasdaq Composite Index is a leading indicator of overall economic health. It is particularly useful as a benchmark for tracking the performance of the technology sector, making it a more volatile index than other established indexes such as the S&P 500.

There are specific criteria that stocks must meet to be listed on the index, including:

• Be a common stock, tracking security, or American Depositary Receipt (ADR) currently listed on Nasdaq. REITs and ETFs are excluded from consideration.
• The company should not be classified as a financial company.
• Each stock must have a minimum average daily trading volume of 200,000 shares, calculated quarterly.

Major milestones in the history of Nasdaq

The history of the Nasdaq stock exchange dates back to 1971, when it was officially launched by the National Association of Securities Dealers (NASD). However, the Nasdaq stock exchange did not open to retail investors until 1980, when a “Level 2” real-time data feed was introduced. This has leveled the playing field among investors by providing real-time updates on bid-ask spreads.

By the mid-1980s, the electronic stock exchange was fully operational, and its model of allowing investors to trade stocks electronically appealed particularly to those outside of New York. One of the Nasdaq’s most significant milestones in the 1980s was Microsoft’s initial public offering in 1986. Microsoft chose the Nasdaq as its trading exchange, lending greater legitimacy to the relatively new exchange.

The late 1990s saw a surge in technology stocks, with many dot-com companies listing on the Nasdaq. Rapid investor interest and market overvaluation led to the construction of the dot-com bubble; the Nasdaq index grew by 86% in 1999 alone. Finally, the bubble “burst” in 2005: the Nasdaq index fell to 1,139.90 units in a single day, October 4th, collapsing by 77% compared to its maximum value.

The role of Nasdaq in the technology sector

Although the Nasdaq is informally known as the “tech stock,” it does not limit its inclusion to just technology stocks: any non-financial stock can qualify for inclusion. However, tech companies are partial to the Nasdaq for several reasons. At first, the Nasdaq had relatively flexible listing requirements compared to other exchanges, allowing younger, growth-focused companies to list their shares. This flexibility and Nasdaq’s unique e-commerce model attracted innovative companies looking to raise capital and gain market visibility.

Technology companies have significantly influenced the performance of the Nasdaq through their market capitalizations, trading volumes and impact on sector indices such as the Nasdaq-100. Although regulations and requirements to list on the stock exchange have increased since its inception, its early access during the technology boom of the 1990s and 2000s led major market makers to list and influence the stock exchange.

Future trends and projections for the Nasdaq

In the future, the Nasdaq is expected to become a recurring hub for innovation and cutting-edge IPOs in technology. Waystar Technologies, Databricks and BMC Software are three pending tech IPOs that could list on the Nasdaq stock exchange. These companies, along with new technology offerings and the continued growth of major names like Amazon.com, are expected to help the Nasdaq reach new heights in 2024 and beyond.

After 2024, the Nasdaq is expected to be the gateway to a variety of new technological advancements. Artificial intelligence, blockchain technology and biotechnology companies are likely to list on the Nasdaq due to its reputation as a long-standing innovation exchange. Regulatory changes, particularly regarding data privacy and the use of blockchain, will need to be constantly monitored to ensure business longevity.

Conclusion

The Nasdaq is a major global stock exchange associated with cutting-edge technologies and is likely to remain dominant in this sector. While this basic overview of the Nasdaq gives you the basics of the Nasdaq and how it works, you can continue to learn more by exploring the stocks included on the exchange and the Nasdaq-100. This market cap-weighted index will introduce you to some of the most influential market makers also on the stock exchange.