What is the difference between the Dow and the Nasdaq?

By Investopedia Staff AAA
A:

Because of the way people throw around the words "Dow" and "Nasdaq," both terms have become synonymous with "the market," giving people a hazy idea of what each term actually means. In this question, "the Dow" refers to the famous figure that peppers almost all business news reports: the Dow Jones Industrial Average (DJIA), an important index that many people watch to get an indication of how well the overall stock market is performing. The Dow, or the DJIA, is not exactly the same as Dow Jones and Company, the firm that publishes the Wall Street Journal. However,the editors of the Wall Street Journal are the people who maintain the DJIA, along with other Dow Jones indices. The Nasdaq is also a term that can refer to two different things: first, it is the National Association of Securities Dealers Automated Quotations System, which is the first electronic exchange, where investors can buy and sell stock. Second, when you hear people say that the "the Nasdaq is up today," they are referring to the Nasdaq Composite Index, which, like the DJIA, is a statistical measure of a portion of the market.

Both the Dow and the Nasdaq, then, refer to an index, or an average of a bunch of numbers derived from the price movements of certain stocks. The DJIA tracks the performance of 30 different companies that are considered major players in their industries. The Nasdaq Composite, on the other hand, tracks approximately 4,000 stocks, all of which are traded on the Nasdaq exchange. The DJIA is composed mainly of companies found on the NYSE, with only a couple of Nasdaq-listed stocks.

Remember, although both "the Dow" and the "Nasdaq" refer to market indices, only the Nasdaq also refers to an exchange where investors can buy and sell stock. Furthermore, an investor can't trade the Dow or the Nasdaq indexes because they each represent merely a mathematical average that people use to try and make sense of the stock market. You can, however, purchase index funds, which are a kind of mutual fund, or exchange traded funds, which are securities that track the indexes.

RELATED FAQS

  1. What exactly is being done when shares are bought and sold?

    Most stocks are traded on physical or virtual exchanges. The New York Stock Exchange (NYSE), for example, is a physical exchange ...
  2. How does FINRA differ from the SEC?

    With all the financial organizations out there, knowing what they all do can be as complicated as knowing where to invest. ...
  3. Which day is known as China's "Black Tuesday" and why?

    On February 27, 2007, the Chinese stock market suffered a correction, causing choppy markets all over the world. The Shanghai ...
  4. What is the downtick-uptick rule on the NYSE?

    To ensure orderly markets, the New York Stock Exchange (NYSE) has a set of restrictions that it can implement when experiencing ...
RELATED TERMS
  1. Bulldog Market

    A nickname for the foreign bond market of the United Kingdom. ...
  2. Float Shrink

    A reduction in the number of a publicly traded company’s shares ...
  3. Capital Strike

    A refusal of businesses to invest in a particular sector of the ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  5. Gray Market

    An unofficial market where securities are traded. Gray (or “grey”) ...
  6. Floating Stock

    The number of shares available for trading of a particular stock. ...
comments powered by Disqus
Related Articles
  1. Spotting A Market Bottom
    Bonds & Fixed Income

    Spotting A Market Bottom

  2. Are Equity-Indexed Annuities Right For ...
    Savings

    Are Equity-Indexed Annuities Right For ...

  3. Introduction To Asian Financial Markets
    Economics

    Introduction To Asian Financial Markets

  4. Get Positive Earnings In The Negative-Sum ...
    Active Trading

    Get Positive Earnings In The Negative-Sum ...

  5. Advocacy Group Seeks To Change Name ...
    Economics

    Advocacy Group Seeks To Change Name ...

Trading Center