Let’s get back to basics! This series unpacks commonly misunderstood terms so you can level up your financial vocab.
Today: Nasdaq! One of those words that looks weirder every time you type it. This will be torture. Nasdaq. Nasdaq. Ugh.
What is Nasdaq?
It was originally affiliated with the governing body that created it, the National Association of Securities Dealers (NASD), but in 2006 it separated to become a national securities exchange independent from NASD. The following year, Nasdaq teamed up with a group called OMX; this group—now called Nasdaq OMX—is currently the biggest exchange company in the world. Our pals at Investopedia have a more detailed timeline if you’d like to read more.
That’s the origin story of the now very popular Nasdaq, a market which lists the securities of a ton of high profile and well-known companies. There’s also the Nasdaq Composite Index, an index which tracks the performance of stocks listed on the Nasdaq exchange.
What Are Securities?
There are three types of securities: debt securities, equity securities, and hybrid securities. Each of which have unique ways for corporations to raise money, and for owners of securities to receive returns and potentially have some control within the corporation via voting rights at things like Annual General Meetings.
Debt securities are a bit like loans; they are financial assets that entitle their owners to interest payments on the repayment of a principal amount.
Equity securities represent ownership interests in a company. Owners of equity securities could make money selling their stock if the stock has gone up in value.
Hybrid securities combine different types of financial securities, and have features of multiple types of securities, hence the name! In the most basic terms, hybrid securities are basically just a mishmash of other security options.
Why Should I Care About Nasdaq?
You should care about Nasdaq if you’re looking to get into investing in the stock market.
In most cases, you’d have a broker to assist you in this foray. But if you’re striking out on your own (or even if you’re not!) you should still have a good understanding of exchange mechanics.
These exchanges impact the value of companies that are listed on them. Hypothetically speaking, if everyone with stocks in Coca-Cola sold them (which would probably never happen!), the stock price would tumble and the company would face financial repercussions.
Each exchange works differently. In the case of Nasdaq, the exchange is weighted by market-capitalization, as noted above. But other exchanges like the Dow Jones are price-weighted, which means the most heavily weighted stocks are the ones with the highest price. The S&P 500 is also market-cap weighted, like the Nasdaq.
How a stock is weighted helps investors discern its value, and contributes to the overall Index’s valuation. For example, the Nasdaq Composite is trading at 13,683.66 at the time of writing. This value is in part composed of an average of all of the stock values in the index, but those stocks are not all weighted equally.
We get it! The Nasdaq is a marketplace where securities are exchanged. It is market-capitalization-weighted and is as popular as the Dow Jones and S&P 500 stock exchanges. It is disproportionately weighted towards tech and growth companies like Apple and Facebook.
The Nasdaq Composite Index is a point of reference for the performance of the stocks trading in the marketplace. The OMX 100 is an index of the largest 100 companies on the Nasdaq exchange. You can buy securities in the Nasdaq exchange through a broker or on your own.
There it is y’all. A Nasdaq crash course. There are so many other complicated components to understanding Nasdaq, or what a stock exchange is or how it works. But we’ll get there. One basic vocab blog post at a time.
This blog is provided for informational purposes only.