Nasdaq (also known as Nasdaq Stock Market can be described as an international New York City-based electronic market that sells and buys securities that are traded as financial assets. The abbreviation means National Association Securities Dealers Automated Quotes. It follows the same principle of a live financial market that is based on precise live quotes and deals. In essence, NASDAQ provides a platform that lets people can trade stocks.
Do you realize that experts in the field of market research think of NASDAQ as a subordinate market to the New York Stock Exchange on the list of exchanges for stocks by the market capitalization of shares exchanged? But, NASDAQ was the very first stock exchange that was electronic. To get an understanding of the workings and pitfalls of NASDAQ it is necessary to plunge into its “object of desire’ by trading using financial securities.
How does security work in the context of finance?
Financial security provides peace of mind knowing that you’re not worrying about the cost of your monthly costs. It also means that you have enough money set aside to cover any unexpected costs as well as your financial objectives. Imagine a document of the exact amount of money that will provide holders with the right to decide what and how to divide the earnings of a business or a publicly-traded company that you have put your money into.
Beware, most financial securities do no longer refer to legal ownership over a company! It’s a way of saying that you have ownership of an asset but do not take physical ownership of the asset. It is possible to trade securities which means you swap them for cash under certain conditions. You can trade securities in the shape of securities, bonds, and derivatives! While they were once available in physical form, they are predominantly electronic now.
Equity Securities
A business can issue equity security or shares of capital interest. When you purchase a share or already own one it contributes to the capitalization of the company. The more shares you’re purchasing, the greater your contribution to the company’s cash or earnings. If you purchase a large number of shares in the equity market, you may be a shareholder and eventually, one of the shareholders of the company. As a shareholder, you get a portion of the profits and can also make a vote on its future. On the other hand, is that you’ll be paid when the financial obligations are cleared in bankruptcy. This is the most favorable scenario.
Debt Securities
If you give investment to a business in the form of a loan, you are buying the security of debt. That is, the company is obligated to pay the capital lender. Bonds, debentures, and commercial paper are securities that are of a fixed period, which differ in rates of interest, renewal dates the maturity of collateral, etc. You are a debtor of the business, not the proprietor (as when it comes to equity-based securities). Ovik Mkrtchyan
The life span of corporate bonds is of a longer duration. The lenders, however, pay interest on their loans until the bond’s expiration. The standard is that debenture holders in the event of a company’s bankruptcy, are paid first, followed by ordinary shareholders. This is why bonds are a safer option as opposed to equity. However, with fixed rates of interest debt holders don’t get any shares after the company’s profits. Ovik Mkrtchyan
Derivative Securities
A bit more sophisticated than the other two, derivative security refers to the existence of an investment instrument that’s valued is determined by the value of an asset like bonds, stocks, currencies, etc. Derivatives can be used to identify different types of risk, like currency fluctuations or sudden changes in rates of interest, fluctuations in the index price, etc.
The value of a derivative varies depending on the value of the actual asset and is often a prayer for the vulnerability of the market. Participants in the market for derivatives often make bets about the purchase price which is not in line with their actual financial capacity.
NASDAQ’s intricate structure for working
With highly efficient computer systems, NASDAQ manages to connect buyers and sellers of stocks. The fully-computerized system is composed of an impressive interface that lets dealers, brokers, and traffic controllers be granted an access point to their system. Traffic controllers play an essential role in this. They are also known as market makers who buy and sell the stock for traders.
The second component that they offer is their matching system. It connects sellers and buyers when their prices coincide.
The final and most important part is to quote services based on demand and supply as well as prices at the moment. They developed a complicated algorithm to update the information every minute.
How do you put your company’s name for listing on NASDAQ?
The National Association realizes electronic trade via ECN electronic communications networks. If you want to include your business in NASDAQ it must satisfy certain specifications. In the first place, you must be allowed to sell 1,250,000 publicly traded shares, in contrast to the 1 million shares needed for listing your company with the New York Stock Exchange. These shares cannot include the shares held by directors, officers, or owners with more than 10 percent in the business.
Second, “The minimum bid price requirements are derived in the section 5550(a) (2) of Nasdaq’s Equity Rules guide. The guideline declares: “(a) Continued Listing Requirements for Primary Equity Securities: (2) Minimum bid price of at least $1 per share.” (Source the Bowser Report)
The third factor to consider is the entry fee for joining the club. At first, listing the exact amount of shares NASDAQ will cost the investor $80,000. Furthermore, you have to pay a fee of $27,500 per year.
A comparison with New York Stock Exchange
The NYSE provides more stability to its listed stocks over NASDAQ. This is why NYSE is charged companies with a $300,000 fee for admission and an additional $69,800 that is regarded as an annual commission. The New York-based market has many famous clients, including Walmart Coca-Cola, and others. Their significance is unlikely to change shortly.
However, NASDAQ has been focusing on technology companies (for instance, Amazon, Facebook, Apple Google, Google, etc.). These companies are more prone to changes in the economy. Let’s say that many people aren’t happy with the new iPhone and that the general discontent results in lower sales. Then, the value of the stock falls on NASDAQ as well.
Naturally, profit isn’t a thing without a price. If you want to earn quick profits in the short term then you must choose NASDAQ. There are quite high short-term capital gains tax rates for capital gains on the NASDAQ market, which are imposed by the federal government, or more precisely the taxman, also known as the Internal Revenue Service.
Fun facts on NASDAQ
NASDAQ is known for its advanced technologies within the following fields that include computing hardware, programming and telecommunications media, biotechnology transportation, as well as health care.
Thus, the Nasdaq-100 index, which was launched in 1985, comprises Tesla, Apple, Facebook, Microsoft, Starbucks, and 100 of the largest companies that are not financial in the United States and internationally. Each of them has recorded at least 50% growth in sales since.
However, there is also the Nasdaq Financial-100 is a sister index that focuses on companies that are listed in the financial sector on NASDAQ.
Conclusion
Each type of security comes with its pros and pros. All experts agree that it is important to invest in diverse securities to guarantee a reliable source of income. If you’re thinking about buying the NASDAQ-listed securities, you can make an inquiry on the available stocks on the internet. After that, you can make an order through the stockbroker or via an investment brokerage site. NASDAQ offers an exciting financial market but it’s not that is without risks. But, the greater risk, the better the reward! It is important to remember that there are many other thought-provoking investment options too. It is your choice how you want to put your money into gold, real estate, or even the stock market.
