What are the Nasdaq exchange and Nasdaq 100 index?

The Nasdaq is a stock exchange that also publishes two widely followed stock indexes. Some of the largest companies in the world, including Apple, Microsoft and Amazon are listed on the exchange.

Both the exchange and the Nasdaq indexes are heavily weighted to technology and growth companies, making it of interest to investors and traders alike.

What is the Nasdaq exchange?

Nasdaq is an American stock exchange headquartered in New York. It was the first electronic exchange in the world and led the move to automated trading.

The exchange is owned by Nasdaq Inc, a publicly listed company. Nasdaq Inc also owns and operate eight European exchanges.
While originally licensed as a stock market, Nasdaq is now a licensed national securities exchange.

Over 3,000 companies are now listed on the Nasdaq exchange. These companies are divided into three tiers for small, mid and large cap stocks.

NASDAQ stands for National Association of Securities Dealers Automated Quotations.

The Nasdaq Indexes

The two widely followed Nasdaq indexes are the Nasdaq Composite and the Nasdaq 100.

The Nasdaq Composite is an index of all common stocks, ADRs and other types of ordinary shares that are listed on the Nasdaq exchange.  

The Nasdaq 100 is a subset of the Nasdaq Composite, consisting of the 100 largest non-financial companies in the Nasdaq Composite index.

The Nasdaq 100 accounts for around 90% of the value of the Nasdaq Composite index.

ETFs, futures and options on both indexes are widely traded. Products tracking the Nasdaq 100 are amongst the most widely traded in the world.

The History of the Nasdaq

The Nasdaq exchange was started in 1971 by the NASD (National Association on Futures Dealers), now known as FINRA. Initially it was set up as an electronic system. When the electronic quotation system became operational it was relatively easy to add a trading system. Thus, the world’s first electronic exchange was born.

By 1981, 37% of stock trades in the US were conducted on the NASDAQ exchange, and by 1991 the percentage had grown to 46%. The exchange really took off in the late 1990s during the “Dot Com’ bubble. It was the first exchange to facilitate online trading and became the preferred exchange for technology companies to list on.

Nasdaq Inc became a listed company in 2002 after FINRA sold its stake in the company. The company now has a market value of $16 billion and annual revenues of $4.2 billion.

How are the Nasdaq indexes calculated?

Both Nasdaq indexes are market cap weighted. That means the weight of each stock in the index reflects its value compared to the value of all the companies in the index.

Market cap weighted indexes are calculated by adding up the value of all the companies and then calculating the percentage attributable to each company. The index is based to 100 when it is launched, and then grows in line with the growth of the companies it includes.

Nasdaq indices are rebalanced annually, in December. Any companies no longer eligible are removed from the indexes and replaced by newly eligible companies. Weighting may also be adjusted according to new share issues or repurchases.