What is NASDAQ, differences between NASDAQ Composite and NASDAQ 100

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The Nasdaq is one of the most followed and famous markets in the world and among the American indices it outperforms the Dow Jones. The first electronic market in the world, NASDAQ is characterized by considerable volatility, thanks to the fact that it mainly acts as an “incubator” for high-growth companies with a strong technological vocation.

nasdaq index

The National Association of Securities Dealers Automated Quotations was born in 1971. NASDAQ is a quota driven market made up of operators who buy and sell shares on their own (dealers). Unlike the order driven markets, which see the presence of both professional operators and private investors and traders in the trading book, the orders given will always and only match the proposals of a dealer.

The market is located in Times Square, but NASDAQ is a fully electronic market that can be “reached” through any authorized bank.

The NASDAQ index since 1971 has had a compound annual yield slightly above 9%. But after the 2009 crisis the annual return was even 18% per year and the companies of this index have driven the strong performance of the US stock exchange in the last 10 years. This is the 10-year performance of the NASDAQ compared with that of the Dow Jones:

nasdaq dow jones comparison

Technology has been the most dynamic sector in recent years, so an investment in this index would have performed particularly well.

Inside the NASDAQ we find companies such as Apple, Amazon, Microsoft, Facebook, Google, companies that today represent the most important by capitalization: in fact, among the top 10 companies in the MSCI USA index, as many as 7 are listed on the NASDAQ and only 3 at the NYSE. In addition, 3,000 non-financial firms are listed on the NASDAQ.

The performance of the NASDAQ market is measured through two financial market indices, which investors often confuse: the NASDAQ Composite and the NASDAQ 100.

The NASDAQ Composite Index

With around 3,200 stocks making it up, NASDAQ Composite is one of the most “populous” indices in the world. For example, to be part of the NASDAQ Composite a company must be listed only on the NASDAQ, although exceptions are allowed for those companies that in 2004 were already listed on another list.

As for the financial instruments admitted to trading, we have: American Depositary Receipts (ADRs), Common Stock, Limited Partnership Interests, Ordinary Shares, Real Estate Investment Trusts (REITs), Shares of Beneficial Interest (SBIs), Tracking Stocks.

The NASDAQ 100 Index

It is a more widespread index that represents a “sub category” of Composite, with which it is often confused. The NASDAQ 100 is composed of 103 shares issued by the main 100 issuers of NASDAQ and is an index built with a capitalization methodology: it therefore favors companies that have a higher market value, although there are maximum ceilings to allow a adequate diversification.

The absence of financial companies differentiates the NASDAQ 100 from both the Standard & Poor’s 500 and the more well-known Dow Jones.

With regard to stocks, the most represented stocks in the index are Apple (11.57%), Microsoft (10.32%), Amazon (10%), Alphabet (4.69%), Facebook (4.46%).

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