Can traders benefit from the differences between the NYSE and NASDAQ?

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The two biggest stock exchanges in the world are NASDAQ and NYSE. Both stock exchanges provide excellent venues for trading securities. They appear to have a lot in common in terms of their size and function from a distance. But if you pay close attention, you will notice that these two major stock exchanges differ significantly from one another. You will have a better understanding of how a stock market operates if you can comprehend the distinctions between NASDAQ and NYSE. In this blog let us know the difference between the 2 biggest stock exchanges.

NYSE:

Based on the total market capitalization of its listed securities, the New York Stock Exchange (NYSE), a stock exchange in New York City, is the largest equity-based exchange in the world. The NYSE, which had previously operated as a private company, changed its status to become a public company on March 8, 2006, after purchasing the electronic trading exchange Archipelago. The largest stock exchange in Europe, Euronext, and the New York Stock Exchange merged in 2007, creating NYSE Euronext, which Intercontinental Exchange, Inc. (ICE), the current parent of the New York Stock Exchange, later purchased.

NASDAQ

Nasdaq is a global electronic exchange where securities can be bought and sold. Nasdaq began as a division of the National Association of Securities Dealers (NASD), now known as the Financial Industry Regulatory Authority. Its name was originally an acronym for “National Association of Securities Dealers Automated Quotations” (FINRA). The Securities and Exchange Commission (SEC) pushed NASD to automate the market for securities not listed on an exchange, which led to the creation of Nasdaq. The first electronic trading system was the outcome. The Nasdaq began operations on February 8, 1971.

• The New York Stock Exchange (NYSE), which dates back to 1792, is the largest stock exchange in the world based on the total market capitalization of its listed securities.
• It was the first formalized stock exchange established in the United States.
• Many of the oldest publicly traded U.S. companies are listed on the “Big Board,” the nickname for the NYSE.
• The Intercontinental Exchange (ICE) now owns the NYSE, having purchased the exchange in 2013.

Financial Results
Customers who use Nasdaq include financial institutions, brokers, institutional investors, and businesses. The majority of Nasdaq’s income comes from the following fees:

• Market services provide investors with access to a range of markets.
• For financial institutions, brokers, and asset managers, investment intelligence includes data, indices, and investment analytics.
• Technology for the market, such as trading and settlement platforms and security measures against financial crime
• listing fees and investment relations services are examples of corporate services.

Nasdaq reported a net profit of $283 million for the first quarter of 2022 which ended on March 31 on revenues of $1.54 billion and revenue-less transaction-based expenses of $892 million. A 3-to-1 stock split will take place in the third quarter of 2022, and the company also announced plans to seek SEC and shareholder approval for an increase in the quarterly dividend by 11% to $0.60 per share.

What distinguishes the NASDAQ from the NYSE?

The biggest difference between NASDAQ and NYSE is the type of market they are.
Nasdaq is a market for dealers. This means that rather than trading directly with one another, all participants trade through a dealer.

On the other hand, the NYSE is an auction market. It enables individuals to conduct auction-based transactions with one another.

While this was the fundamental and most obvious distinction, there are a few others, which we will now discuss.

Dealer’s market versus the auction market

The formats of NASDAQ and NYSE serve as an illustration of how differently they conduct business.

The NYSE operates an auction market where buyers and sellers simultaneously submit competitive bids. The price at which a stock is traded reflects the highest price a buyer will pay and the lowest price a seller will accept. The matching bids and offers are then paired together, and orders are then carried out by a specialist.

Numerous dealers post the prices at which they buy or sell a specific stock on a dealer’s market like NASDAQ.A dealer performs the function of a market maker in a dealer’s market. This phrase refers to a market participant or member firm, such as a bank or brokerage firm, that actively buys and sells stocks on behalf of investors. Market makers have the ability to speed up the process of matching buyers and sellers. Additionally, they effectively manage liquidity and carry out trading.

Transaction Location

The locations of transactions for trading on the NASDAQ and on the NYSE are very different, despite the fact that the two biggest stock exchanges in the US are both in New York City. Although the New York Stock Exchange still has a physical trading floor, most transactions take place at its data center in Mahwah, New Jersey.

NASDAQ is an entirely electronic exchange, in contrast. It operates through direct trading between investors and the market makers and lacks a physical trading floor. A computer bulletin board system was initially used for all trading on the NASDAQ, but more recent automated trading systems have been introduced that provide the benefit of daily trading volumes and comprehensive trade reports.

Traffic Management

Connecting buyers and sellers is a crucial task performed by traffic controllers. They play slightly different roles in NASDAQ and NYSE, though. In general, traffic controllers are in charge of handling traffic issues and making sure their markets function properly. Different traffic controllers at each exchange carry out their duties in slightly different ways.

The market maker, a traffic controller for NASDAQ, actively buys and sells stocks on behalf of investors. The specialist, who acts as the NYSE’s traffic controller, makes it easier for buyers and sellers to transact by determining the opening prices for stocks, accepting limit orders, and regulating interest in specific stocks. While enabling a smooth and orderly market for clients is the same objective for both roles, how they go about achieving it varies.

While the specialist at the NYSE merely facilitates a market, the market maker at NASDAQ effectively creates one.

An automatic system for directly matching buyers and sellers, the electronic communications network (ECN), handles nearly 40% of the trade volume on the NASDAQ. Comparatively, only 7% of the volume on the NYSE is executed through an ECN.  However, as society evolves toward a hybrid of humans and machines, that is certain to change.

Types of Listed Companies

Each stock exchange has a different number of stocks that are listed there.

How many businesses are listed on NASDAQ and the NYSE?
When it comes to the listings on NASDAQ and NYSE, the difference between the two is that Nasdaq has more than 3,300 listings while the NYSE trades stocks for about 2,800 companies.

100 of the largest publicly traded companies, measured by market capitalization, make up the NASDAQ-100. There are numerous small- and micro-capitalization stocks on the NASDAQ’s larger exchange.

How to purchase NASDAQ and NYSE stocks?

You can use an online broker to purchase NYSE and NASDAQ stocks online. One of the top online investment companies, Wealthface, can assist you in beginning to trade stocks on these well-known exchanges.

Listing Conditions
The listing requirements for NASDAQ and NYSE are also different. A business must have at least 1,250,000 shares available for public trading in order to be listed on NASDAQ.

Companies must issue a minimum of 1,100,000 shares to at least 400 shareholders in order to be listed on the NYSE.

The entry fee for businesses looking to list on the NYSE can reach $500,000, whereas the entry fee for businesses looking to list on the Nasdaq can range from $50,000 to $75,000, with an annual fee of roughly $27,000.

Companies that list on the NYSE must have a minimum share price of $4 and a market value of at least $40 million for their common stock. Companies must have at least three different individual dealers for their stocks in order to be listed on the NASDAQ.

Perception of Stocks

When it comes to public perception, the NASDAQ tends to be more volatile than the NYSE.

The biggest reason behind that is the fact that the NYSE has a lot of long-established, stable companies such as Coca-Cola, Citigroup, IBM, and Walmart.

The NASDAQ, on the other hand, is more well-known for listing fast-growth tech businesses with potentially more scope for dramatic price movement. Some of the most popular stocks listed on the NASDAQ are Facebook, Apple, Google, and Amazon. Now you can easily invest in these big companies with small investments through the fractional shares option.

Public vs. Private

Each exchange used to have a different ownership structure than it does now. NASDAQ used to be a publicly traded company, whereas the NYSE was a privately held company. All of that changed, though, in March 2006, when the NYSE also went public and allowed investors to trade its shares on a market. Through the Nasdaq and NYSE platforms, traders can invest in Nasdaq and NYSE.

Can traders benefit from the differences between the NYSE and NASDAQ?

Here are some factors to think about if you want to choose the best market for you as a stock trader.

Nasdaq VS NYSE 

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Volatility: The stocks listed on the NASDAQ will be better for you if you want to trade stocks with the potential for swift price changes. The stocks listed on the NYSE are a better choice if you want to trade with more stable stocks. According to popular belief, NASDAQ stocks are more volatile than NYSE stocks. This is so because NASDAQ contains long-standing, established businesses. IBM, Walmart, Coca-Cola, and Citi Bank are a few examples. On the other hand, NASDAQ is rumored to contain rapidly expanding volatile companies, primarily tech companies, with the potential for significant price fluctuations. Google, Apple, Facebook, and Amazon are examples of stocks.

Trading style: Unlike the NYSE, the NASDAQ does not provide floor brokers as a trading option. It only conducts electronic transactions. However, derivatives, ECNs, and third parties can be used to trade the products that are offered by both NASDAQ and NYSE. So those were the distinctions between the NYSE and NASDAQ, two of the largest stock exchanges in the world.

Location: These two organizations are both based in New York. The way they trade, however, differs significantly. The majority of trading and transactions are conducted in Mahwah, a New Jersey-based location, where the NYSE still maintains a physical trading floor. In contrast, NASDAQ works directly with investors and market makers despite not having a physical trading floor.
Around 2800 companies are listed on the NYSE as a whole, compared to about 3000 on the NASDAQ.

Market: The way that they conduct business distinguishes NASDAQ and NYSE in fundamental ways. As an auction-based market, the NYSE allows buyers and sellers to enter bids simultaneously. The maximum price that the buyer is willing to pay and the minimum price that a seller will accept are both reflected in the trade as the highest price. The dealers market, on the other hand, is where numerous dealers enter their prices when they are ready to buy or sell the stock.

Indices: Compared to the NYSE, listing a company on NASDAQ requires less money. The NASDAQ has more companies listed than the NYSE does for this reason.NYSE offers NYSE 100 and NYSE Composite, while NASDAQ offers NASDAQ composite, NASDAQ 100, and NASDAQ biotechnology.

Listing fee: There is a $50,000–$75,000 entry fee. The yearly listing fee comes to $27,500 in total. There is a $500,000 entry fee. The maximum annual listing fee is $50,000 and is based on the total number of shares.

Founded: In comparison to the NYSE, NASDAQ was founded in 1971. It was established by the NASDAQ CMX group. 1792 saw the founding of the NYSE. 24 brokers who signed the Buttonwood Agreement founded it.

CEO: CEOs of the NASDAQ and the NYSE are respectively Bob Greifeld and Duncan L. Niederauer.

Conclusion

As was previously mentioned, despite being significant indices and engaged in the same type of trading, NASDAQ and NYSE operate very differently and have different constituents. Additionally, there are listing requirements that the business must adhere to or meet in order to list on the NYSE or NASDAQ These two exchanges are similar and different at the same time. You can use the differences between the stock exchanges to select the right exchange for your trading needs.