By Daniella Hebert - The Ursuline School
Understanding the stock market can be (very) difficult. There are statistics about different stock exchanges in the news, on the internet, and in that pre-installed app on your phone that you never actually use. But, what does it all mean?
The two largest stock exchanges worldwide, based on total market capitalization, are the New York Stock Exchange (NYSE) and the National Association of Security Dealers Automated Questions (NASDAQ). It can be easy to confuse the two, but these exchanges have some key differences.
While both NASDAQ and NYSE are located in New York, all of the trading that occurs is not.
The NYSE, or “Big Board,” consists of a physical trading floor where traders use an open outcry system. The open outcry system is the old-fashioned trading method where traders agree to buying and selling prices through verbal bidding and hand motions. Although the exchange is known for its transactions that take place in person, many trades are now done electronically as well.
Nasdaq is an electronic marketplace where trading occurs through a telecommunications network. This computerized method of trading began in 1971, much more recently than the NYSE, which began in the late eighteenth century. To this day, exchanges around the world model their electronic trading methods after Nasdaq.
The NYSE and Nasdaq operate in different ways.
At the New York Stock Exchange, stocks are traded by auction. This means that stocks are traded directly between buyers and sellers on the trading floor when people make bids. At the NYSE, the exchanges of sellers and bidders with matching prices are carried out and specialists help facilitate the trade in different ways.
Nasdaq is known as a dealer’s market, meaning that stocks are bought and sold through a special dealer called a market maker. In dealer’s markets, the stock prices are clearly displayed and trading occurs indirectly through this market maker, rather than in person, as in the NYSE.
The NYSE and Nasdaq are known for different types of stock listings.
The New York Stock Exchange contains listings for companies that are generally older, well-established, and reliable. Metlife, Bank of America, and American Express are among the companies whose stocks are traded at the NYSE.
Nasdaq, due to its innovation in electronic trading, contains the listings for basically all of the big companies in technology. The stocks listed on Nasdaq tend to be more unpredictable in their growth, a factor that can be either helpful or harmful for investors. Apple, Netflix, and Microsoft are all listed on Nasdaq, but other companies such as Jetblue Airways are too.