The NASDAQ is the world’s first electronic stock exchange. Launched on Feb. 5, 1971, it transformed the financial markets by eliminating the need for a physical trading floor and in-person trading.
It’s the second largest stock exchange in the world based on market capitalization next to the NYSE. What that means is that if a company had 50 million shares listed on the NASDAQ and each share was worth $100, then its market capitalization would be equal to 50,000,000 x $100, or $5 billion.
The NASDAQ Composite Index is as old as the exchange and covers more than 3,000 stocks, which are all listed on the NASDAQ Stock Market. One of the most followed indexes in the United States, it began with 50 companies and a starting value of 100, with the number of companies increasing to over 3,000 today and the index reaching a high of 7,846.76 in July 2018.
The NASDAQ Composite Index includes all equity securities listed on the Nasdaq Stock Market, including common stocks, ordinary shares, American depositary receipts (ADRs), units of real estate investment trusts (REITs) and publicly traded partnerships, as well as tracking stocks. Not eligible for inclusion are the securities of closed-end funds, exchange-traded funds (ETFs), preferred shares, rights, warrants, convertible debenture securities, or other derivatives.
Technology stocks—including software, computer and internet companies, among others—dominate almost half of the NASDAQ Composite. Average daily share trading volume at NASDAQ stands at over 2 billion. In the year 2021, the exchange handled over 1,000 IPOs or Initial Public Offerings.
The easiest way to invest in the NASDAQ Composite Index is to buy an index fund, which is a mutual fund or ETF that passively tracks the index, designed to invest in all of the components of a stock index and in the same weights as the index.
While both the NASDAQ Composite Index and the S&P 500 are market-cap weighted indexes, there are some key differences. The NASDAQ Composite only includes companies that are listed on the NASDQ Stock Market and has a heavy weighting toward the tech industry. The S&P 500 includes about 500 of the largest and most profitable companies in the U.S.
Companies with a greater market capitalization have a greater impact on market-cap weighted indexes. As the values of the stocks listed on the NASDAQ go up and down, so does its value.
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