Trading on the Nasdaq Market

The Nasdaq Stock Market was the world’s first electronic market when it opened in 1971. Now dozens of markets around the world are screen based, including those in London, Paris, Tokyo, and Hong Kong.

Trading on the Nasdaq is through an open market, multiple dealer system. Those dealers, or participating firms, are called market makers and compete to handle transactions in individual stocks. That’s a contrast to the auction market system used on traditional exchanges, where all the buy and sell orders in a stock must go through a single specialist. And since there are a number of market makers, and everyone trading in the system is linked electronically, transactions can be handled more quickly.

A market maker posts buy and sell quotations for a guaranteed number of shares – usually one round lot, or 100 shares. When an order arrives, the market maker fills it at the posted price or finds a buyer or seller to complete the trade. All quotes are displayed on the Nasdaq quote montage.

The first electronic communications network (ECN) was introduced in 1997. Computer-based ECNs match buy and sell orders at the same price automatically and anonymously, eliminating the bidding process that's characteristic of both market-maker and auction markets.

Reading Nasdaq Tables
Trading in the largest and most active Nasdaq stocks is reported in the Nasdaq National Market Issues, which is published in the financial press for every trading day. National Market Issues appears in a format similar to the listings for NYSE and AMEX stocks. But the trading symbols in the Nasdaq lists have four or five letters, unlike the NYSE and AMEX exchanges, which use symbols of one to three letters.

Few Nasdaq companies have tended to pay dividends, in part because many of them prefer to put earnings back into the business.

Nasdaq Small-Cap Issues
Smaller, emerging companies trade on the Nasdaq Small-Cap Market and activity is reported in the Nasdaq Small-Cap Issues. The table concentrates on current volume and price, since many of the companies are too new to have established a financial track record.

Some of the companies do pay dividends on preferred stock offerings, so that information is reported immediately following the name when it applies.

Trading activity in the stocks varies from more than a million shares during a day to as few as 100.

Trading Symbols
All stocks are represented by trading symbols – single to five letter abbreviations used to identify the security in the market where it is listed, and in stock quotations and tables. No two symbols are alike – even in different markets.

When the system was developed in the 19th century, one-letter symbols were especially prestigious, since they were given to the most actively traded stocks. That’s no longer necessarily the case.