On February 7, 1971, the National Association of Securities Dealers launched the world's second-largest and first electronic stock exchange by market capitalization.。First, it allows automatic quotes, and then starts offering stock trades。The idea was to use new technology (then computers) to make transactions as electronic and efficient as possible.。

As Nasdaq increasingly focused on technology as a differentiator, it quickly formed a competitive relationship with the New York Stock Exchange (NYSE)。Nasdaq Stock Market Becomes First to Allow Online Trading。Unlike the New York Stock Exchange, NASDAQ has no trading floor and no people placing orders with each other, but is purely electronic.。As tech companies look to go public with IPOs, Nasdaq's commitment to technology has attracted various tech companies like Microsoft or Oracle.。

Nasdaq continues to expand its stock market through partnerships and acquisitions。For example, Nasdaq acquired the Philadelphia Stock Exchange and established its first "intercontinental link" with the London Stock Exchange in 1992.。In 2006, Nasdaq spun off from its original founding partner, NASD, allowing it to operate nationwide as a stock exchange.。A year later, Nasdaq added a Scandinavian-based exchange, OMX。

Although the NYSE's market capitalization remained higher than Nasdaq's as of August 2022, Nasdaq has narrowed the gap in recent years.。From 2015 to 2019, Nasdaq grew at an annual rate of 6%, twice the rate of the NYSE over the same period.。In 2021, Nasdaq held IPOs worth more than $190 billion and NYSE held IPOs worth more than $109 billion.。

What is the Nasdaq Composite Index?？

A stock index is a formula that uses a number to measure the performance of the entire market or a particular industry, allowing you to see at a glance how the entire market is performing.。A stock index is calculated based on the stock prices of its member companies。

When investors want to know what's going on in the tech sector, they often turn to the Nasdaq Composite Index。While more companies are listed on the NASDAQ exchange, this NASDAQ stock index only includes more than 3,500 companies。The Nasdaq Composite Index has several key features:

• High tech content: The Nasdaq index is high tech because most of the companies listed on the Nasdaq exchange are included in the index, and most of the companies on the Nasdaq exchange are technology companies。
• Weighted: The stocks in the index are weighted to account for their different sizes (market capitalizations), because tech giant Amazon's market capitalization is much larger than that of tech camera pioneer GoPro, so the index uses a formula to calculate。
• Internationalization: Unlike other indices (such as the S & P 500 or Dow Jones), companies in the Nasdaq Composite Index are not only headquartered in the United States。
• Not just stocks: the index includes a variety of technology-related securities, such as real estate investment trusts (REITS, tradable real estate investments), exchange-traded funds and American depositary receipts (ADRs, foreign stocks traded in the United States).。

How to Calculate the Nasdaq Composite Index？

The Nasdaq Composite Index is calculated throughout the day based on prices reviewed every second.。At the end of the trading day, the final Nasdaq Composite Index will be determined and reported at 4: 16 pm ET (the market closes at 4 pm ET).。

The calculation of the Nasdaq Composite Index must convert the value of more than 3,500 stocks into a single stock index number with three key elements: weighting, "last price" (the latest price of the listed securities) and "index divisor."。

First, Nasdaq uses a market capitalization-weighted approach to ensure that its impact on the final number matches the size of the company.。

All stock weights for each underlying security are then multiplied by the latest price of that security。

The sum of these numbers divided by the "index divisor" determined by NASDAQ is the NASDAQ Composite Index.。

As of September 30, 2022, the NASDAQ Composite Index had the following industry distribution, ranging from the most representative to the least representative:

• Information Technology (43.16%)
• Consumer (16.89%)
• Communication Services (13.71%)
• Healthcare (9.15%)
• Finance (5.08%)
• Consumer Goods (4.58%)
• industry (4.39%)
• Utilities (1.02%)
• Real Estate (0.95%)
• Energy (0.75%)
• Materials (0.32%)

How are the three indices different?？

The Nasdaq Composite Index is our technology-focused index, while the S & P 500 and the Dow Jones Industrial Average (also known as the "Dow") are the other two indices.。

• Different number of companies: each index contains a different number of listed companies。

The Dow is a club of 30 large, well-known public companies that represent an important part of the U.S. economy;。The Nasdaq Composite Index is made up of more than 3,500 companies, dominated by technology companies.。

• Different focus: When investors want to know "how the market is going," they usually don't look at the tech-restricted Nasdaq, but rather the S & P 500 and Dow Jones.。

The Dow represents 30 well-known "blue-chip" listed companies that are designed to reflect the diversity of the market, although the scope is limited.。The S & P 500 is often considered a better summary of the U.S. stock market than the Dow because it contains a larger and larger group of companies.。The Nasdaq Composite Index contains a large number of diversified companies from the technology industry, thus showing the performance of the broader technology market, but because other industries such as food or fashion are not well represented in the Nasdaq Composite Index, the index is a measure of the broader market.。

• Different calculations: to combine a bunch of companies with different valuations and share prices into one index, you need a formula。Every formula is different.。So, as of October 2022, the Dow Jones is about 30,185, the S & P 500 is 3,677, and the Nasdaq Composite is 10,675.。

The Dow has a much smaller number of shares and is weighted by share price。As a result, companies with the highest share prices have the greatest weight in the index and therefore the greatest impact on the Dow numbers。Both the S & P 500 and Nasdaq are weighted by market capitalization, which may make more sense to some investors because they believe that market capitalization more accurately reflects what the index should measure。Because the value of a company as measured by market capitalization includes both the stock price and the number of shares outstanding in the market。

• Different trends: because the number of companies, areas of concern and even calculation methods of the three indices are different, you will find that they do not move in the same way.。Let's focus on the Dotcom bubble of the late 1990s and see how they worked:

Driven by the Dotcom bubble, the Nasdaq rose from less than 1,000 points in 1995 to more than 5,000 points in 2000.。But investors bought tech stocks in an unsustainable way, and the bubble "burst" between 2001 and 2002, when the Nasdaq fell back almost 1,000 points.。The Dow and the S & P 500 also experienced a rise in the Dotcom bubble and a fall after the bubble burst.。But they have risen and fallen far less than the Nasdaq, as the Dotcom bubble has had the biggest impact on tech stocks.。