NASDAQ vs. NYSE: 3 Key Differences Stock Traders Should Know

Author: George Davis

The main differences between the NASDAQ and NYSE stock exchanges

The New York Stock Exchange (NYSE) and NASDAQ are two of the biggest stock exchanges in the world and provide traders with a platform to trade securities. However, even though they are similar in their purpose and size, both markets are entirely different. As a trader, you need to understand the critical differences between NASDAQ and the NYSE, to understand how trading in the stock market works.

The main difference between the two markets is that there are differences in every aspect; the NASDAQ is what is called a dealer’s market, where the participants trade with the help of a dealer instead of with one another directly. The NYSE is called an auction market, where the participants can engage in transactions with one another based on an auction.

We will discuss these differences in detail, along with the other key differences you should know about. These include the following:

1. Auction Market vs. Dealer’s Market

There is a difference in the formats of both the NASDAQ and the NYSE market. One is a dealer’s market, while the other is an auction market. That means the way they operate is fundamentally different. In an auction market like the NYSE, it is based on buyers and sellers entering bids simultaneously.

The price at which stocks are traded reflects the highest price buyers want to pay and the lowest price that sellers will accept. The bids are paired together, and the orders will be executed. In a dealer’s market like the NASDAQ, multiple dealers will post their prices to buy and sell stocks. In this market, the dealer is the market maker and will buy and sell stocks for the traders.

2. Location of Transactions

Even though both institutions are established in New York City, the transaction locations are poles apart. The NYSE has a physical trading floor, even though most transactions take place at their data center in New Jersey. The NASDAQ deals in electronic exchanges and therefore doesn’t have a physical trading floor and will operate with direct trading between market makers and investors.

3. Traffic Control

The traffic controllers have one task: to connect buyers with sellers, but they have different roles in the NASDAQ and NYSE. They are responsible for ensuring the market runs effectively and deal with traffic problems. However, in the NASDAQ, the traffic controller will buy and sell the stock for the traders, but the NYSE traffic controller will facilitate the market for the buyers and sellers.

Even though both traffic controllers play different roles in the market, they have the same goal: to ensure an orderly and smooth market for their clients.

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