NYSE and NASDAQ Fundamentals

The New York Stock Exchange (NYSE) and NASDAQ are two of the largest stock exchanges in the world. Both are based out of New York but they have key differences that impact how investors and companies interact with them.

Trading Structure

The biggest difference between the NYSE and the NASDAQ are in how transactions occur within each exchange.

The NYSE is the iconic auction style market made famous by various movies and television shows. This is the environment of high-energy brokers on the floor of the stock exchange making purchases and selling off stock on behalf of their clients with trades taking place in person. To get the ball rolling, clients call their personal broker who then calls a broker on the floor or they transmit the information electronically to a specialist. Typically, this is where the “blue-chip” companies prefer to be, and those who aspire to the classification.

In comparison, the NASDAQ is much less lively. There is none of the frenetic physical motion of traders on the floor because the interactions are digitally based. They occur in an electronic environment. Because of the digital nature of the exchange, it is open for longer periods each day which extends the opportunities for clients to make sales or purchases. This is where tech startups usually land.

It is important to note that these are generalizations and it is possible for a company to list themselves in whichever exchange they prefer. NASDAQ:AAPL is a good example of a high-value tech company that has recently been classified as a blue-chip company even though it is listed on the NASDAQ.

Going Public

Part of the perception of the NYSE is the increased value of the stocks which are traded there. In order for a startup to be listed on the NYSE, companies may pay as much as $500,000. Then there are the yearly listing fees. On the NYSE these are based on the total numbers of shares listed but the total is limited to a maximum of $500,000. Those companies who have a great deal of capital to invest have an advantage in that it is more affordable for them to be listed on the NYSE.

However, as many people are aware, the value of tech stocks which typically prefer the NASDAQ, can increase rapidly. For a startup to be listed on the NASDAQ, it is more common for companies to pay around $50,000. The yearly fees are far less on the NASDAQ. They are usually limited to about $27,00. Companies who have less capital to invest in trading fees gravitate more towards the NASDAQ.

Current Events and Strategy

The stock market is remarkably volatile regardless of which exchange one is looking at. While some more firmly established companies have a greater ability to weather shifts in the political climate, they will still react to current events that trigger investor’s hopes and insecurities. Because of this, it is extraordinarily important for investors to have a basic strategy.

Part of this is understanding the importance of diversification. This means a diverse approach to investing in both the types of stocks one chooses as well as which exchange they are traded on. By diversifying it is far easier to ensure that one news cycle is not capable of critically devaluing all of one’s investments.

It is important to understand the basic differences between the two largest stock exchanges in the world. However, do not let historic meanings limit investment choices. Each exchange has a wide selection of companies that have significant potential.