Since money market accounts are offering very low interest rates currently, many investors are turning to stocks and bonds as an alternative way to earn interest. Many people are unaware that there are some very striking differences between the major market indexes. Here, we’ll take a look at these indexes and explain some of the differences.
Both the NYSE and the Nasdaq contain some powerhouse companies. While you can find some household names such as Johnson and Johnson, Coca-Cola, American Airlines, and many others on the NYSE, you’ll find tech giants like Microsoft, Oracle, and Cisco on the Nasdaq. In general, the Nasdaq tends to contain more tech oriented companies than the NYSE
However, there are some fundamental trading differences between the two.
NYSE
In the NYSE, floor traders who have access to the securities floor bid on trades through an auction market. A specialist is assigned to every single stock in the NYSE. This means that in order to buy a stock on the NYSE, a broker has to either purchase it on a DOT system, or call it in to a floor broker.
Nasdaq
While the NYSE has a physical location, the Nasdaq is a wholly electronic trading market. Market makers rather than specialists oversee stocks on the Nasdaq. These market makers manage the liquidity and trading for each stock. The Nasdaq is run as an Over the Counter trading market, which basically means buyers and sellers are connected to one another via the Nasdaq network.
Brokers still have to place calls to market makers on the Nasdaq network, but all trades are processed through an online system that is sponsored by Nasdaq.
Your broker can give you more details regarding index terminology, so don’t be afraid to ask.
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