The Nasdaq and the New York Stock Exchange (NYSE) are the two largest stock exchanges in the US – and in fact, the two largest exchanges in the world by market cap. Together, they represent nearly $50 trillion in value.
While the process of buying and selling stocks on either exchange may seem identical to most investors, there are important differences between how the Nasdaq and NYSE work. In this guide, we’ll explain what the Nasdaq and NYSE have in common and how they differ. So, ready to find out which stock exchange is the better choice for your needs? Let’s get to it in this comparison of Nasdaq vs. NYSE!
What is the Nasdaq?
The Nasdaq – short for National Association of Securities Dealers Automated Quotations – is an electronic stock exchange founded in 1971. At the time it was founded, the Nasdaq was the world’s first electronic exchange, using computers to match buyers and sellers. In 2006, the Nasdaq separated from the National Association of Securities Dealers to become its own publicly traded company.
Today, the Nasdaq exchange lists more than 3,000 stocks, including many technology stocks. Nearly 2 billion shares are traded on the exchange every day.
What is the NYSE?
The NYSE was founded in 1792 in New York City and remains there today. It is the world’s largest exchange by market cap and lists more than 2,800 stocks, including many of the US’s blue-chip stocks. The exchange is owned by Intercontinental Exchange, Inc., which purchase the NYSE in 2013.
Nasdaq vs. NYSE: Similarities
There are a few fundamental similarities between the Nasdaq and NYSE.
First, both are publicly traded companies. The Nasdaq went public in 2006, while the NYSE went public in 2013 after its acquisition by Intercontinental Exchange, Inc.
Second, both the Nasdaq and NYSE have stringent listing requirements for the companies that trade on these exchanges. All companies on the Nasdaq and NYSE must have a minimum number of years in business, meet a minimum earnings threshold, and maintain a minimum share price. In addition, both the Nasdaq and NYSE require companies to make detailed financial disclosures to shareholders.
The specific listing and disclosure requirements at the two exchanges do differ slightly, which might make one exchange more suitable for a company than the other.
Nasdaq vs. NYSE: Differences
There are several important differences in how the Nasdaq and NYSE facilitate trading.
Dealer vs. Auction Market
The fundamental distinction between the Nasdaq and the NYSE is that the Nasdaq is a dealer market, while the NYSE is an auction market.
At the Nasdaq, there are multiple market makers for any given stock. On average, each stock on the exchange has 14 different market makers, which are typically broker-dealers, large investment firms, or banks. Each market maker offers both buy and sell quotes for the stock they cover, creating price competition on the exchange for each individual stock. When traders enter buy and sell orders on the Nasdaq, the orders are executed automatically at the best possible price among the available market makers.
At the NYSE, buyers and sellers at the exchange can enter orders specifying the maximum they’re willing to pay to buy shares or the minimum they’re willing to accept to sell shares. These orders are then matched by designated market markers, also known as specialists.
The difference in how trading works between the Nasdaq dealer market and the NYSE auction market means that market makers at the two exchanges play different roles. At the Nasdaq, market makers create the market for a stock by buying and selling it in response to incoming orders.
At the NYSE, on the other hand, designated market makers simply match incoming orders, thus facilitating a market that already exists. That said, designated market makers at the NYSE can also buy and sell shares to maintain balance in the market for a stock, similar to how market makers at the Nasdaq operate.
Both the Nasdaq and NYSE are based in New York City. However, the location where transactions actually take place differs between the two exchanges.
As a fully electronic dealer exchange, the Nasdaq does not have a physical trading floor and uses a distributed network of data centers to facilitate orders. The NYSE, on the other hand, operates a physical trading floor on Wall Street and has a centralized data center in Mahwah, New Jersey.
Types of Stocks
One of the most salient differences between the Nasdaq and NYSE for traders is what types of stocks you’ll find on the two exchanges. Differences in their ages and listing requirements have resulted in the Nasdaq becoming the home for many tech stocks, while the NYSE is home to many manufacturing stocks and blue-chip stocks.
Importantly, the cost of listing on the Nasdaq is typically lower than the cost of listing on the NYSE, which drives many young companies towards the Nasdaq.
As a result, the Nasdaq has a reputation for listing more growth-oriented stocks and having higher volatility than the NYSE. The NYSE has a reputation for listing more long-lived stocks and dividend stocks with relatively lower volatility.
However, this generalization starts to break down if you look closely at the stocks on the two exchanges. The Nasdaq and NYSE compete closely for new IPOs, and there is no shortage of tech stocks on the NYSE or dividend stocks on the Nasdaq.
Conclusion: Nasdaq vs. NYSE
The Nasdaq and NYSE appear to be quite similar from the investor’s perspective since both exchanges make it easy to buy and sell stocks nearly instantaneously. However, the two exchanges use fundamentally different market systems to facilitate trading. The Nasdaq is a dealer market, while the NYSE is an auction market. Recognizing how these two exchanges differ is important for understanding how stock trading works.