NASDAQ is a uniquely American electronic stock exchange.The original acronym stood for National Association of Securities Dealers Automated Quotations system.TheNational Association of Securities Dealers (NASD) founded the NASDAQ in 1971.They later divested themselves of any interest in the exchange by a series of sales in 2003-2016 by The Nasdaq Stock Market, Inc. NASDAQ is the largest electronic screen-based equity securities market in the United States.It lists more companies ( approximately 3,200)and, on average, trades more shares per day than any other U.S. market.
NASDAQ became the world’s first electronic stock market when it began trading on February 8, 1971. At first, it served as a computer bulletin board system and did not actually connect buyers and sellers. The NASDAQ helped lower the spread (the difference between the bid price and the ask price of the stock) butwas unpopular among brokerages because they made much of their money on the spread. Over the years, NASDAQ added trade and volume reporting and automated trading systems enabling it to become an actual stock market.NASDAQ was innovative in being the first stock market to advertise to the general public.They also began highlighting NASDAQ-traded companies, usually in technology. The NASDAQ became famous closing with the declaration that NASDAQ is “the stock market for the next hundred years.”
Most trading occurred via the telephone, until 1987. But during the October 1987 stock market crash, market makers often didn’t answer their phones. To prevent market confusionthe Small Order Execution System (SOES) was established, which provides an electronic method for dealers to enter their trades. The public then began to have full access to be able to trade on the NASDAQ.The unique feature of the NASDAQ became the ability to inform the public and allow them to react quickly.The potential investor can invest in a number of ways by reaching brokers or market makers inside the NASDAQ or using a certified broker.Usually all NASDAQ orders are placed electronically. One of the functions of NASDAQis that it allows multiple market participants to trade through its Electronic Communication Networks structure.This increases the competition and helps insure a fair price. The Small Order Execution System (SOES) is another uniquely NASDAQ feature, introduced in 1987.This helps to ensure that in ‘turbulent’ market conditions small market orders are not forgotten but are automatically processed. Despite the large numbers of companies listed and trades donea small investor still can be successful in trading on the NASDAQ. The NASDAQ has become a stock trading home to companies that are leaders across all areas of business including technology, retail, communications, financial services, digging, transportation, media and biotechnology.The NASDAQ also tends to serve as the first exchange for newly public and highly anticipated companies when they first begin trading.
In order to understand bidding on the NASDAQ one must understand the level of quotes that are available.The first level or Level 1 quote shows the highest bid and lowest offer.This is called the inside quote. The Level II quoteshows all public quotes of market makers together with information of market makers wishing to sell or buy stock.This level of quote also shows allrecently executed orders.The Level III quoteis used by the market makers and allows them to enter their quotes and execute orders.By understanding each level of quote the potential investor can gain a clearer picture of the fair price for the intended investment and then preceed accordingly.