American stocks are primarily traded on two major exchanges: the New York Stock Exchange (NYSE) and the NASDAQ, each with its own characteristics and history. The NASDAQ is widely known for its association with the technology sector and is often seen as a more modern, fast-paced exchange, featuring many of the world’s leading tech giants. While the New York Stock Exchange has a long-standing reputation for being more traditional, often perceived as a stable and conservative marketplace. Both exchanges are central to the U.S. stock market, but the Nasdaq vs. NYSE differ in listing standards, the types of companies they attract and their trading mechanisms.
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Understanding the NYSE
The New York Stock Exchange, or NYSE, dates back to May 17, 1792. That day, 24 New York City stockbrokers and merchants signed the Buttonwood Agreement outside 68 Wall Street and formed the exchange. The Buttonwood Agreement got its name after all parties signed it under a buttonwood tree.
The exchange now trades about 1.46 billion shares per day. As a result, it’s the leading stock exchange in the world. The NYSE trades stocks for 2,800 companies, which range from blue-chip to new, high-growth companies. However, each company listed on the NYSE has to meet strict requirements. The NYSE has a reputation of trading strong, high-quality securities, and their requirements help maintain that reputation.
The major players on the floor of the NYSE are specialists and brokers. Specialists and brokers create a system that provides investors with competitive prices based on supply and demand. Brokers are employed by investment firms and trade on behalf of their firm or their firm’s clients. Brokers bring the buy and sell orders to the specialists.
Specialists stay in one location on the floor and deal with one or several specific stocks, depending on how much they trade. Those same specialists accept buy and sell orders from brokers and manage the actual auction. Specialists will also ensure there is a market for their specified stocks at all times. For example, if they have to, they will invest their own firm’s capital to keep the market active and maintain the shares’ liquidity.
Understanding the NASDAQ
NASDAQ stands for the National Association of Securities Dealers Automated Quotations. It was created by the National Association of Securities Details, and opened on Feb. 8, 1971, as the world’s first electronic stock market. Today, it has more than 3,300 company listings, and is located in Times Square in New York City.
As an electronic exchange, it has no physical trading floor. Consequently, no one has to be there in person to make trades. Instead, the NASDAQ exchange uses automated computer networks to make trades. NASDAQ is a dealers’ market, which means brokers buy and sell stocks through a market maker rather than from each other. Market makers deal in certain stocks and hold a certain number of stocks on their books. As a result, when brokers want to purchase shares, they can purchase them directly from a market maker. The NASDAQ carries out about 1.8 billion trades per day, more than any other United States stock exchange.
NASDAQ trades stocks of a variety of companies. However, it’s known as a high-tech exchange that trades many new, high growth and volatile stocks.
NASDAQ vs. NYSE: The Differences
Although the NASDAQ makes more trades per day, the NYSE’s market capitalization far exceeds that of the NASDAQ. The two exchanges also have different trading models. The NYSE has a hybrid trading model that uses both people and technology, whereas the NASDAQ is an entirely electronic exchange. Although NYSE still has its Wall Street trading floor, the vast majority of exchanges occur at the NYSE’s data center in Mahwah, New Jersey.
Looking at NASDAQ vs NYSE offers a glimpse at different types of markets. The NYSE is an auction market, while NASDAQ is a dealer market. In an auction market, the highest bid for a stock matches the lowest asking price. In a dealer market, buying and selling happens in split seconds electronically through dealers. The NYSE has one Designated Market Maker (DMM) per stock that ensures a fair and orderly market in that security. Meanwhile, the NASDAQ has an average of 14 market makers per stock.
NYSE vs. NASDAQ: The Similarities
The stereotype is that the NYSE is where all of the big blue-chip companies are listed, but the NASDAQ is where tech startups are listed. There’s some truth to that, but some NASDAQ stocks belong to some of the largest companies traded today. For decades, the NYSE didn’t allow small, new companies to list. As a result, the NASDAQ was a place where newer companies could list their IPOs. However, NYSE is larger and lists more established companies, but it’s up to 70% to 80% cheaper for a company to list its stock on NASDAQ.
Before 2006, NYSE was a privately traded corporation, while NASDAQ was a publicly traded corporation. In March of 2006, the NYSE went public after being a not-for-profit exchange for nearly 214 years. Today, both the NASDAQ and the NYSE trade on their own exchanges. Since the NYSE is now a publicly traded corporation, it must follow the standard filing requirements laid out by the Securities and Exchange Commission, as must NASDAQ.
Bottom Line
The NASDAQ and NYSE have become more similar over time, but key differences in how they operate and their overall reputations still play a significant role in the types of securities traded on each exchange. The NASDAQ is known for being the go-to exchange for growth-oriented tech stocks, offering opportunities in emerging sectors and innovation-driven companies. The NYSE is often associated with more established, blue-chip companies, making it a preferred choice for investors seeking stability and a history of strong financial performance.
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