From a glance, the difference between the
New York Stock Exchange (NYSE) and
Nasdaq may not be marked. The NYSE lists household names like Coca-Cola, Wal-Mart, Citicorp, and General Electric, whereas the Nasdaq is home to many of the tech giants such as Microsoft, Cisco, Intel, Oracle and Sun Microsystems. Besides the heavy tech weighting, the fundamental difference between the two exchanges is in the way securities are traded.
NYSE The NYSE is an
auction market that uses
floor traders to make most of its trades. Each stock on the NYSE has a
specialist; this is a person who oversees and facilitates all of the trades for a particular stock. If you wish to buy a stock that trades on the NYSE, your broker will either call your order to a
floor broker, or enter it into the
DOT system (which we will discuss later on). (For more insight, see
Markets Demystified and
The Tale Of Two Exchanges: NYSE and Nasdaq.)
Nasdaq The Nasdaq, on the other hand, is not a physical entity. The Nasdaq might be known for its fancy MarketSite Tower and broadcast studio in Times Square, but very little is done there. The Nasdaq is an
over-the-counter (OTC) market and it relies on
market makers rather than specialists to facilitate trading and
liquidity in stocks. For each stock, there is at least one market maker, (large stocks such as Microsoft have several), whose duties we will discuss later on. (Want to learn more? Read
What's the difference between a Nasdaq market maker and a NYSE specialist?)
Rather than being an auction market, the Nasdaq is a communications network between thousands of computers. Instead of brokers calling out orders, market makers place their names on a list of buyers and sellers, which is then distributed by the Nasdaq in a split second to thousands of other computers. If you wish to buy a stock that trades on the Nasdaq, your broker will either call up a market maker with the information of your trade or enter your order into a Nasdaq-sponsored online execution system.
