What are NASDAQ and the NYSE? NNNNNAAASSSSDDDDAAAQQQQQ. It stands for:
National
Association
Of
Securities
Dealers
Automated
Quotation-systems
And yeah, it feels like they got cheated out of an ‘S’ there at the end. Like NASDAQS. But, uh, that’s what happens when life’s on a budget.
So NASDAQ is an electronified version of the original wall, as in the street, Wall Street. Yeah, that where well dressed folks would come with cash in hand, scream out a stock and a price and then trade shares. They would trade for whatever was trending at the time:
Like eyeball massagers, or wooden swimsuits, or motorized surfboards.
All real, by the way.
NASDAQ is the much more modern version of its predecessor NYSE, which is anything but nice when you lose money there.
The N Y S E stands for:
New
York
Stock
Exchange
And it too was an outgrowth of the well-dressed folks at the wall.
There are two key structural differences in the two trading systems — the NYSE is an actual place. It has a physical location, address, etc. And this is what it looks like:
NASDAQ is a concept. A religion. A network. It’s not really a place, at least not a geographic place. The other big difference is the manner in which shares are traded - the NYSE is an auction based system. One individual is a buyer of AMZN at $1,983.25. He screams (electronically) that number and then buys from whoever is willing to sell at that price.
Individuals buy from individuals. That’s an auction market.
But NASDAQ is a dealer market. That is, somebody deals in a stock.
They go out into the market and buy, say, a million shares of whatever.com that was bought in the market conveniently for exactly 10 bucks even. That dealer now ‘makes a market’ in that stock - i.e., the dealer is kind of a market unto herself and she moves with the market to manage the spread on the trades.
Like....she might have a narrow spread where she’s a buyer of the stock at 10.02 a share and a seller of it at 10.07 a share.
Or, if it is a really wild, volatile stock on a wild and volatile day, she might be a buyer at only 9.90 and a seller at 10.30...a 40 cent spread.
You can do the fancy math that, if she keeps her ‘inventory’ steady at a million shares, and trades a million that day with that spread, she makes 40 cents times a million or 400 grand for that day’s efforts.
However, after staring at a screen all day, she’s going to have to spend at least some of that money on eyecare. Thank goodness for eyeball massagers…