Nasdaq is the name of an all-electronic stock exchange in the United States and, separately, of the stock indexes calculated from the companies that list on it. When people say the market "was up because of the Nasdaq," they usually mean one of those indexes, most often the Nasdaq Composite or the Nasdaq-100, rather than the exchange itself. The two uses are connected but distinct: the exchange is the trading venue where shares change hands, and the indexes are yardsticks that summarize how the stocks listed there are performing.
Nasdaq
Nasdaq refers to two related things: an electronic U.S. stock exchange and a family of stock indexes named after it. The exchange is where shares trade; the indexes measure the performance of stocks listed there.
Last reviewed by Steven Fox, CFP®, EA
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Quick Summary
- The name Nasdaq refers to both a stock exchange and the indexes built from stocks listed on it, which is the source of most confusion about the term.
- The Nasdaq Composite tracks nearly all stocks listed on the Nasdaq exchange.
- The Nasdaq-100 tracks the 100 largest non-financial companies listed there.
- Because of what tends to list on the exchange, both indexes lean heavily toward technology companies.
Definition
Advanced Explanation
The exchange came first. Nasdaq launched in 1971 as the first fully electronic stock market, with no physical trading floor, matching buyers and sellers through a computer network. A great many technology and growth companies chose to list there, which is why the name became associated with the tech sector, though companies of all kinds list on it.
The indexes are where the number most people quote comes from. The Nasdaq Composite is a broad, market-capitalization-weighted index of nearly every common stock listed on the Nasdaq exchange, so it can include thousands of companies. The Nasdaq-100 is narrower: it holds the 100 largest non-financial companies listed on the exchange, again weighted by size, and it is the index behind many widely traded funds. Both are dominated by their largest members and tilt heavily toward technology because of what lists on the exchange, not because the index rules single out the sector. A practical consequence is that "the Nasdaq was down 2%" is not the same statement as "the market was down 2%": the Nasdaq indexes are concentrated and can move quite differently from a broad, economy-wide index. An investor should know which Nasdaq figure is being quoted, because the Composite and the Nasdaq-100 are not the same measure.
Used in a Sentence
“She realized the fund tracked the Nasdaq-100 rather than the whole market, so its swings reflected a concentrated group of large technology companies rather than the economy at large.”
How It Works
A company applies to list its shares on the Nasdaq exchange and, once listed, its stock trades there electronically. Index providers then calculate the Nasdaq Composite from nearly all listed common stocks and the Nasdaq-100 from the 100 largest non-financial ones, weighting each company by its market value so the biggest companies move the index the most.
A hypothetical to separate the two senses. If a mid-sized software company lists its shares on the Nasdaq exchange, its stock now trades there, and it becomes part of the Nasdaq Composite. It would only enter the Nasdaq-100 if it grew into one of the 100 largest non-financial companies on the exchange and was not a financial firm. So the same company can be "on the Nasdaq" (the exchange) and in the Composite without ever being in the Nasdaq-100.
Pros and Cons
What the Nasdaq indexes are good for
- The Nasdaq-100 is a clean, widely tracked measure of the largest U.S. non-financial growth companies.
- The Composite gives a broad read on everything listed on the exchange.
What to watch for
- Both indexes are concentrated and technology-heavy, so they are not a stand-in for the whole market.
- "The Nasdaq" is ambiguous: the Composite and the Nasdaq-100 are different indexes with different membership and behavior.
- The largest few companies carry so much weight that they can drive the index on their own.
People Also Asked
Answers to the most frequently asked questions.
Is Nasdaq a stock exchange or an index?
Both, and that is the main source of confusion. Nasdaq is an electronic U.S. stock exchange where shares trade, and it is also the name of the indexes built from stocks listed on that exchange. When people quote "the Nasdaq" going up or down, they almost always mean one of the indexes, not the exchange.
What is the difference between the Nasdaq Composite and the Nasdaq-100?
The Nasdaq Composite includes nearly all common stocks listed on the Nasdaq exchange, which can be thousands of companies. The Nasdaq-100 includes only the 100 largest non-financial companies listed there. The Nasdaq-100 is narrower, more concentrated, and the index behind many popular funds.
Why is the Nasdaq considered tech-heavy?
Because a large share of technology and growth companies have historically chosen to list on the Nasdaq exchange, both Nasdaq indexes end up dominated by those companies. The index rules do not target technology; the tilt comes from which companies list there and how large they have grown.
Does the Nasdaq represent the whole stock market?
No. The Nasdaq indexes cover only stocks listed on the Nasdaq exchange and lean heavily toward large technology companies, so they can move quite differently from the overall market. A broad index like the S&P 500 or a total market index gives a fuller picture of how U.S. stocks are doing.
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