The NASDAQ

If you've heard of the NASDAQ and wondered what it was, here's where you get the answer. The NASDAQ (National Association of Security Dealers) sells stocks that are too small to list on the NYSE or the American Stock Exchange (AMEX). These stocks are known as "over the counter" or OTC stocks, because they aren't traded on the floors of the big exchanges. NASDAQ stocks were originally bought and sold by the client calling the broker who then called security dealers to find the best buying or selling price available for the stock. While this used be done by stressed out people on the phone, in 1971, the NASDAQ was

computerized, with dealers (also called "market makers") posting the buying and selling prices of the stocks of about 100 companies. Competition between dealers for trading keeps the stock prices fairly even between them, with maybe a difference in price of somewhere between $0.03 and $0.10. That difference is referred to as the "spread". Other than that, prices are regulated as they are in the big stock exchanges by what people are willing to pay: the shares prices move up and down moment to moment, depending on their availability and the number of available buyers. Supply and demand set the prices, and the dealers adjust prices according to how many people are buying and how many are selling any particular stock at one time.

The closing price of any particular stock in the NASDAQ is set by the last trade as of 4:03 PM EST. You can trade on the NASDAQ until 6:30PM and it reopens at 8:30AM each weekday morning. And you can see how the NASDAQ is doing in a single, general number referred to as the NASDAQ Index, the NASDAQ version of the Dow Jones Industrial Average, which we'll talk about further on.

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