10 Things Every Investor Should Know About the Nasdaq

Learn how to watch investment trends through the Nasdaq, the second-largest stock exchange in the U.S.

The Nasdaq stock exchange includes popular stocks such as Apple, Alphabet, Cisco, Microsoft, Amazon and Facebook. You might be surprised, however, about the lesser-known, top Nasdaq stock performers of 2016. Last year's Nasdaq stock quotes included these three top performers: Wins Finance Holdings up 1,400 percent, Corbus Pharmaceuticals Holdings up 412 percent and CoLucid Pharmaceuticals up 335 percent.

Review these 10 Nasdaq facts — and learn how to read a stock chart — then, try to use the information to increase your investing prowess.

The Nasdaq Is All-Electronic
andersphoto / Shutterstock.com

1. The Nasdaq Is All-Electronic

The National Association of Securities Dealers Automated Quotations is the largest, all-electronic stock trading market in the U.S., with 2 billion shares changing hands every day. Unlike the New York Stock Exchange, you can't visit the trading floor of the Nasdaq. The only physical Nasdaq site consists of a billboard in New York's Times Square that shows real-time stock quotes and financial news.

The Nasdaq Holds the Second U.S. Market Slot
ymgerman / Shutterstock.com

2. The Nasdaq Holds the Second U.S. Market Slot

The Nasdaq was created in 1971 to boost over-the-counter trading for stocks that couldn't qualify for an NYSE listing. The Nasdaq is now the second-largest stock market in the U.S. and ranks third in the world. If you own a technology stock, it's probably traded on the Nasdaq — and it likely has a few years of strong activity behind it.

It’s Tough to Get Listed on the Nasdaq
lev radin / Shutterstock.com

3. It’s Tough to Get Listed on the Nasdaq

Similar to the NYSE, businesses must meet certain criteria to be listed on the Nasdaq. Each company's revenue, cash flow, pretax earnings, market capitalization, total assets and stockholders' equity must surpass pre-determined limits.

Negative pretax earnings disqualify a company from listing on the Nasdaq Global Select Market. In addition, financial requirements vary for the Nasdaq Global Market and the Nasdaq Capital Market.

The Nasdaq Trades Glamour Stocks
Kdonmuang / Shutterstock.com

4. The Nasdaq Trades Glamour Stocks

Although there are more than 3,200 diverse businesses listed on the Nasdaq, technology companies dominate. The Nasdaq-100 Index represents the largest nonfinancial domestic and international securities listed on the exchange, based on market capitalization.

If you're considering investing in the Nasdaq-100 Index, check out Invesco's PowerShares QQQ ETF (QQQ). Although past returns don't predict future earnings, its return of 12.04 percent — as of April 13, 2017 — is considerable.

Nasdaq Securities Are Volatile
Erikona / iStock.com

5. Nasdaq Securities Are Volatile

Unlike NYSE or American Stock Exchange businesses, Nasdaq companies are extremely volatile and trade rapidly. The Nasdaq electronic system might have as many as 50 or 60 middlemen handling the stock and up to 10 electronic networks trading it, whereas the Dow Jones industrial average might have a single specialist handling trades for a particular stock.

The Nasdaq stock exchange experiences larger price swings than other exchanges, so when you buy or sell stocks, set limit orders to lock in your price target. A limit is an order to buy or sell a stock at a specific price or better, which means you can put a ceiling on the price you'll pay for a stock you want to buy and a floor on the price at which you'll sell it.

The Nasdaq’s Active Stocks Cover a Range of Industries
g0d4ather / Shutterstock.com

6. The Nasdaq’s Active Stocks Cover a Range of Industries

Recently traded Nasdaq stocks include several well-known companies. As of April 19, 2017, the 15 most active Nasdaq stocks were:

  • Sirius XM Holdings (SIRI)
  • Frontier Communications (FTR)
  • Microsoft (MSFT)
  • Huntington Bancshares (HBAN)
  • Micron Technology (MU)
  • PowerShares QQQ Trust Series 1 (QQQ)
  • Finisar (FNSR)
  • Apple (AAPL)
  • VelocityShares Daily Inverse VIX Short-Term ETN (XIV)
  • Intel (INTC)
  • Cisco Systems (CSCO)
  • Facebook Cl A (FB)
  • Comcast Cl A (CMCSA)
  • Ctrip.com International ADR (CTRP)
  • Oclaro (OCLR)

Although the list of the top 15 active stacks is interesting to read, don't use it as your buy-and-sell list. Just because the stocks are trading a lot doesn't mean they're the best investments for your portfolio. Do your homework and research a company's stock before you buy.

Read: 9 Safe Stocks for First-Time Investors

The Nasdaq Composite Index Is Huge
Ariel Bravy / Shutterstock.com

7. The Nasdaq Composite Index Is Huge

The market capitalization weighted Nasdaq Composite Index launched in 1971 and now includes more than 3,000 companies. The Nasdaq index is larger than any other major index and includes most securities listed on the Nasdaq stock exchange with the exception of closed-end funds, convertible debentures, exchange-traded funds, preferred stocks, rights, warrants, units and other derivative securities. Fidelity's Nasdaq Composite Index Fund is a low-cost way to capture the Nasdaq Composite's returns. The fund has a 0.30 percent expense ratio and a minimum initial investment amount of $2,500.

Related: What Is an ETF?

Nasdaq Charts Include Historical Data
McIek / Shutterstock.com

8. Nasdaq Charts Include Historical Data

Like other stock charts, the Nasdaq chart is fairly easy to grasp. Follow these five tips to learn how to read it:

  1. The horizontal axis shows the time period. You can set the graph to view any period from one day to 10 years or more.
  2. The vertical axis lists the index value during the respective time periods. The 10-year vertical time period shows a range from 1500 to 6500, which reflects the Nasdaq price appreciation.
  3. The line graph shows the value of the Nasdaq (IXIC) during the time period.
  4. You can change the stock chart display to show different types of information, which might include moving averages and other factors that appeal to more experienced traders.
  5. Visit the Yahoo Finance website to see the trading volume and high and low prices at the bottom of the graph.
A Nasdaq Global Index Exists for All Investors
zhu difeng / Shutterstock.com

9. A Nasdaq Global Index Exists for All Investors

Nasdaq created a variety of international indexes for the average or sophisticated investor. The Nasdaq indexes span the globe and represent a variety of asset classes. Offerings range from the conservative Dividend Achievers and Fixed Income indexes to the more targeted Nasdaq OMX Stockholm 30 index.

The Nasdaq Was Fierce During the Past 52 Weeks
ESB Professional / Shutterstock.com

10. The Nasdaq Was Fierce During the Past 52 Weeks

The Nasdaq composite price ranged from 4,574 to 5,936 during the previous 52 weeks. On April 19, 2017, the 52-week Nasdaq Composite return was 18.49 percent. That return beat the Standard & Poor's 500 index's 11.21 percent gain and the Dow's return of 12.76 percent. The only investors who experienced that exact return, however, were those that bought on day one and sold on day 365.

Up Next: 11 Things Every Investor Should Know About the Dow Jones Industrial Average