The Tale Of Two Exchanges: NYSE And Nasdaq
October 31, 2003 | By Investopedia Staff, (Investopedia.com)
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Whenever someone talks about the stock market as a place where equities are exchanged between buyers and sellers, the first thing that comes to mind is either the NYSE or Nasdaq, and there's no debate over why. These two exchanges account for the trading of a major portion of equities in North America and the world. At the same time, however, the NYSE and Nasdaq are very different in the way they operate and in the types of equities that trade upon them. Knowing these differences will help you better understand the function of a stock exchange and the mechanics behind the buying and selling of stocks.
Location, Location, Location
The location of an exchange refers not so much to its street address but the "place" where its transactions take place. On the NYSE, all trades occur in a physical place, on the trading floor of the NYSE. So, when you see those guys waving their hands on TV or ringing a bell before opening the exchange, you are seeing the people through whom stocks are transacted on the NYSE.
The Nasdaq, on the other hand, is located not on a physical trading floor but on a telecommunications network. People are not on a floor of the exchange matching buy and sell orders on the behalf of investors. Instead, trading takes place directly between investors and their buyers or sellers, who are the market makers (whose role we discuss below in the next section), through an elaborate system of companies electronically connected to one another.
Dealer vs. Auction Market