There is always confusion among new investors about NYSE vs NASDAQ. They both are stock exchange platforms and have differences in their working principles and listing requirements. In this article, we will talk about NYSE vs NASDAQ in detail.
New York Stock Exchange (NYSE) Overview
NYSE (New York Stock Exchange) is a US-based stock exchange where SPACs, ETFs (Exchange Traded Funds), mutual funds, and other cash entities are listed for trading. As more than 2800 companies are listed on NYSE such as Alibaba Group Holding, Berkshire Hathaway, VISA, Johnson and Johnson, Walmart, etc. it is the biggest stock exchange company based on market capitalization. The term market capitalization can simply be defined as the total no. of shares multiplied by the market price. NYSE has a long history as it all started on May 17, 1992, when 24 stockbrokers signed an agreement called Buttonwood Agreement at 68 Wall Street. This agreement kicked off an official stock exchange and started an American investment community also popular by the name “Wall Street”.
The American Stock Exchange, originally called “curbstone brokers”, the ancestors of the Amex market were tough and independent. They used to invest in small companies and emerging industries. This helped a large segment of corporations to grow faster. Since then Amex has been at the forefront of the U.S financial and stock market. Finally in October 2008 when NYSE Euronext merged with American Stock Exchange for $260 million in stock, it became the world’s largest Stock Exchange Company. As of September 2021, NYSE sits on top with a market capitalization of over 28.4 trillion U.S dollars.
NASDAQ acronym for the “National Association of Securities Dealers Automated Quotations” is also a US-based Stock Exchange. Biggest tech giants like Alphabet (Google), Meta (Facebook), Apple, Microsoft, Amazon, etc are listed in Nasdaq making Nasdaq the second biggest stock exchange company based on market capitalization just after NYSE. Originally founded by the National Association of Securities Dealers (NASD) in 1971, hence the name Nasdaq. NASD which is currently recognized as Financial Industry Regulatory Authority (FINRA) writes and enforces new rules for brokers and market makers. Nasdaq was the world’s first electronic stock market and also the first stock market to trade online through a website.
In 2001, “European Association of Securities Dealers Automated Quotation System (NASDAQ)” and NASDAQ were merged and became NASDAQ Europe. Till now Nasdaq has more than 3500 companies listed for trading. In 2020, just by listing companies and their revenues, Nasdaq earned a whopping $5.627B which is a 32% increase from 2019. As of 2021, Nasdaq has a market capitalization of over 19.4 trillion U.S dollars with which it is just behind NYSE.
NYSE vs NASDAQ Trading Schedule:
As both NYSE and NASDAQ are U.S based Stock Exchange, their trading schedule looks quite similar. For NYSE American the pre-opening session starts at 6:30 am ET (Eastern Time). Pre-orders can be placed and will be queued until the Early Open Auction session that starts from 7:00 am to 9:30 am ET. Finally, the core trading session starts at 9:30 am to 4:00 pm ET, where 3:50 pm to 4:00pm is generally the closing Auction Imbalance Freeze Period. The Auction closes at 4:00 pm ET. As for trading days, NYSE trades 5 days a week i.e. from Monday to Friday, and may not trade if it’s a public holiday.
For NASDAQ the extended-hours trading session (premarket) starts from 7:00 am to 9:30 am ET. The core trading session starts from 9:30 am to 4:00 pm ET. The market closes at 4:00pm. Finally, from 4:00 pm to 8:00 pm is an extended-hours trading session (post-market). As for trading days, NASDAQ trades 5 days a week i.e. from Monday to Friday, and may not trade if it’s a public holiday.
Auction Market and Dealer Market:
New York Stock Exchange (NYSE) is based on the Auction Market. So what exactly is an auction market? Well, an auction market is a type of market where the sellers and buyers directly can trade by themselves. That means the price per share is determined by the lowest price the seller is willing to take and the maximum price the buyer is willing to pay. These two parameters are called offer and bid respectively. So when the bid by the buyer matches the offer provided by the seller the exchange will be executed. The point to notice here is that the auction market trades directly between a seller and a buyer where both would call out prices on the trading floor. If the bid and offer do not match then the order will remain pending unless a matching bid comes by.
NASDAQ is based on the dealer market. In the dealer market, the seller and buyer cannot trade directly with each other but needs to go through the middleman normally called “market makers”. These market makers buy and sell the stocks (securities) between seller and buyers, and gain a certain percentage of profit from overall capital. These market makers help improve the market liquidity as these firms quickly buy and sell those securities without causing any drastic change in the share price.