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.

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