How Does the NASDAQ Work?

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The term NASDAQ is an American stock exchange and an acronym for National Association of Security Dealers Automated Quotations. It is generally an exchange system that trades and prices numerous stocks. Some investors also use the NASDAQ like an index, with the purpose of measuring how stocks are doing, NASDAQ is the second largest electronic display screen for the equity market within U.S. It holds information for around 3,300 corporations, trades shares and keeps more records for companies than any other trading market within the U.S. Founded in 1971, it lists over 3,000 companies and in terms of share volume, is one of the most heavily used stock markets in the United States. Most of the companies traded in the NASDAQ are technology based mainly due to the dot net boom which happened in the 1990’s.

How does the exchange work?

The exchange is a computerised system where instant quotes are provided for securities because it does not rely on a trading floor, which is the customary way of practicing stock exchange and pricing. The exchange is also incorporated into the over-the-counter market (OTC), therefore when buying and selling stock, a consumer’s broker can enter the quotes and stock quote information for the chosen security into the computer. The computer finds the best price for the stock being considered and the business transaction is completed. The stock pricing and exchange can be performed via telephone or through a corporate’s inventory account, companies which desire to be listed on the NASDAQ system require at least 100,000 publicly held shares and an asset holding of at least $ 1 million. They also need to have a minimum of 500 shareholders in order to be listed. Once the company is approved and listed on the NASDAQ, the company should have a minimum of 300 share holders to remain in their position on the NASDAQ system.

NASDAQ 100 Index

The NASDAQ 100 index includes 100 of the largest domestic and non financial securities listed on the Nasdaq stock market based on market capitalization. The index reflects companies across major industry groups including hardware and software, telecommunications and bio technology. The NASDAQ 100 consists of only securities that are listed under the NASDAQ National Market tier.

How to Trade Your Company Stock in NASDAQ

Investment Banks such as Goldman Sachs, Merrill Lynch, CitiGroup and JP Morgan help you trade in the NASDAQ. These banks are the ones that distribute the stock for the company that you don’t have to do. The investment banker will provide two options for trading the securities; the first is a commitment that they will guarantee the sale of a certain amount of stocks. The second scenario is a best-efforts agreement, this means that the banks can do their best for selling the securities but offer no guarantee. The investment bank which acts an intermediary between the company and the stock exchange will submit an application to the Securities and Exchange Commission (SEC), this document provides information on the board of directors of the company, promoters, financial holdings, insider holdings, legal issues and what the business proposes to do from the money generated from trading. Next, the company can woo investors while the SEC reviews their application, the more people you get on board to invest in your company, and the more successful you will be. Later, you can discuss with your banker to determine the rate per share, the bank will be able to determine what is a good price based on your earnings. Once the shares are sold, the proceeds will be transferred to your company’s account, so that you can use the funds for expansion and diversification.


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