NYSE vs Nasdaq: how the main US exchanges differ

The New York Stock Exchange (NYSE) and Nasdaq are the two largest stock exchanges in the United States. A company chooses one of them as its primary listing venue, and its ticker then appears under that exchange's name. The two were built on different trading models, and some of those differences still show up in how they operate, but for an ordinary investor the practical gap is much smaller than it used to be.

Two different origins

The NYSE is the older institution, with roots going back to the late 18th century. For most of its history it was an auction market. Buyers and sellers, through their brokers, met on a physical trading floor in New York, and a single specialist for each stock managed the auction and kept trading orderly.

Nasdaq began in 1971 as the world's first electronic stock market. It started as a computerized quotation system and worked as a dealer market: several competing market makers posted prices at which they would buy and sell, and customers traded against them. There was no central trading floor.

How they work today

Both exchanges now rely heavily on electronic trading, and the old labels are only partly accurate:

• The NYSE is a hybrid. Orders are matched electronically, and a small number of designated market makers are still assigned to each stock to add liquidity and run the opening and closing auctions. A trading floor still exists, though most orders never touch it. The NYSE is owned by Intercontinental Exchange.
• Nasdaq matches orders electronically, and market makers still quote prices and provide liquidity. Nasdaq runs its own opening and closing cross, which is an auction that sets the official opening and closing price. Nasdaq, Inc. is itself a publicly traded company.

Both operate under the same federal regulations and oversight by the Securities and Exchange Commission (SEC). Both open at 9:30 a.m. and close at 4:00 p.m. Eastern time. The matching of orders is covered in how the stock market works, and the firms that supply liquidity are described in market makers and high-frequency trading.

Listing and company mix

To list, a company applies to an exchange and must meet its requirements, such as minimum share price, number of public shareholders and financial thresholds, and must agree to ongoing corporate-governance and reporting rules. Each exchange has different tiers and requirements, and those rules change over time, so check the exchange's current rulebook rather than relying on rules of thumb.

In practice, each exchange has a recognizable flavor:

• The NYSE lists many long-established companies in industries such as banking, energy, industrials, consumer staples and health care.
• Nasdaq is home to a large number of technology and biotechnology companies, along with many younger and fast-growing firms.

These are tendencies, not rules. Both exchanges list large and small companies from many sectors, and many household-name companies are on either one. A company going public decides based on fees, services, prestige, index and peer considerations, and sometimes habit. See what is an IPO.

Example (illustrative numbers)

Say a stock has its primary listing on the NYSE. You might expect all trades to happen there, but that is not how it works. A US-listed stock can be traded on any venue that is allowed to trade it: the NYSE, Nasdaq, other exchanges, and off-exchange venues. Your broker routes your 100-share order to whichever venue it believes will give the best execution. The trade could fill on Nasdaq even though the stock is "NYSE-listed." The primary exchange mainly determines the listing rules, the official opening and closing auctions and the symbol, not where all of the volume happens.

Comparing the two

Common mistakes and limits

• Assuming one exchange is better for investors. Both are regulated, liquid and transparent. Returns depend on the company, not the venue.
• Equating Nasdaq with technology only. The Nasdaq lists many non-tech firms, and the NYSE lists many tech firms.
• Confusing exchanges with indexes. The S&P 500 holds stocks from both exchanges. An index and an exchange are different things. See what is a stock index and Dow Jones, Nasdaq Composite and Nasdaq 100.

Where to see it on StocksXray

The research universe on StocksXray is the S&P 500, which includes companies listed on both exchanges, so you can compare firms across venues using the same metrics.

Key takeaways

• The NYSE began as a floor-based auction market; Nasdaq began in 1971 as an electronic dealer market.
• Today both are largely electronic and share the same regulator and trading hours.
• The NYSE leans toward established companies, Nasdaq toward technology and growth, but both list firms of every kind.
• A stock's primary listing does not limit where it trades.
• The exchange a stock lists on says little about its quality or prospects.

This article is educational and is not investment advice.