The Nasdaq and the NYSE are stock exchanges that trade securities. Nasdaq stands for the National Association of Securities Dealers Automated Quotation and NYSE stands for the New York Stock Exchange.

Both the Nasdaq and NYSE are publicly traded companies, and as such, investors can buy shares of each on public exchanges. The NYSE is owned by NYSE EuroNext Inc. and issues shares under the ticker symbol (NYSE: NYX). The Nasdaq is owned by Nasdaq OMX Group Inc., and its shares trade under the ticker symbol (Nasdaq: NDAQ).

Key Takeaways

  • The New York Stock Exchange and the Nasdaq are both exchanges that trade securities.
  • The New York Stock Exchange has been around since the late 18th century and the Nasdaq was founded in 1971.
  • Because the two exchanges are both publicly-traded companies, investors can buy shares of the two exchanges.
  • Investors thinking of buying NYSE or Nasdaq stock need to carefully consider how the stocks fit within their portfolios and make allocations accordingly.

Nasdaq

The Nasdaq was founded in 1971 to enable traders to trade securities on a speedy, transparent computerized system. The exchange split from the National Association of Securities Dealers in 2006. The exchange is headquartered in the United States and operates 26 markets—primarily equities, and also including options, fixed income, derivatives, and commodities.

New York Stock Exchange (NYSE)

The New York Stock Exchange was founded in roughly 1792 when four brokers signed what is known as the Buttonwood Agreement, setting some agreed-upon ground rules for securities trading. It is based in New York City and is the largest equity-based exchange in the world.

As with the decision to invest in any company, research into the business must be undertaken first, with an investor examining fundamental and technical characteristics of the company before placing an order.

How to Pick Stock

Just because the Nasdaq and NYSE are publicly traded, as such can be invested in, does not necessarily mean investors should invest in them. Each individual company needs to be evaluated on its own merits and compared against each investor's unique needs, goals and risk tolerance.

Before buying a stock, investors should examine a company's balance sheet, income statement, cash flow statement, and footnotes. These can be found in the company's annual report, also called its 10-K. The publication of 10-K reports is mandated by the U.S. Securities and Exchange Commission (SEC). Investors can find them on the SEC's public database, called EDGAR.

Once a stock has been analyzed, investors need to determine the potential return and volatility of the stock and whether that fits his or her particular profile. Another factor is how the stock fits in a portfolio. Most investors seek a diversified portfolio, hoping to achieve a target return while taking on the least amount of risk. Having a more concentrated portfolio increased the risk of big loss, but it also increases the total return potential. A stock's risk and return profile affects the total portfolio's risk and return profile, though by moving in the opposite direction of other holdings, a risky stock has the potential to make an overall portfolio less risky.

The Nasdaq has more than 3,300 company listings, while the New York Stock Exchange has 2,800 company listings.

Individual Stocks vs. Index Funds

Modern Portfolio Theory (MPT) advocates diversification as a source of risk reduction. One easy way to diversify a portfolio is to invest in a mutual fund that tracks a larger index fund. It can be difficult to properly diversify a portfolio when picking stocks one at a time.

ETFs

There are ETFs (Exchange Traded Funds) that track some of the most widely held stocks on the NYSE and the Nasdaq. The DIA ETF tracks the Dow Jones Industrial Average, one of the most widely followed indexes at the NYSE. The QQQ ETF tracks some of the most widely held stocks on the Nasdaq.