Difference Between NASDAQ and Dow Jones
NASDAQ and Dow Jones have been used interchangeably, but have different meanings.
- Dow refers to Dow Jones Industrial Average (DJIA), a crucial stock market index globally.
- On the other hand, NASDAQ refers to the National Association of Securities Dealers Automated Quotients Exchange, an electronic exchange system.
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NASDAQ vs. Dow Jones Infographics
Here are the top 4 differences between NASDAQ vs. Dow Jones.
- NASDAQ is a U.S. stock market index containing around 3,000 companies. In contrast, the DJIA comprises 30 major industry leaders and major contributors to the industry and the stock market.
- NASDAQ primarily includes technology-based corporations such as Apple, Google, and several other companies in their growth stages. DJIA is circulating the companies’ earnings, and they may be pulled off if the stock prices falter.
- NASDAQ is based on the company’s outstanding stockOutstanding StockOutstanding shares are the stocks available with the company's shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner's equity in the liability side of the company's balance sheet. value, i.e., on multiple companies’ index market capitalizationMarket CapitalizationMarket capitalization is the market value of a company’s outstanding shares. It is computed as the product of the total number of outstanding shares and the price of each share.. Dow Jones is a price-weighted average index indicating that any stock splitStock SplitStock splits refer to the process whereby a company increases its number of shares, reducing the per-share price of the stocks. or adjustment is not considered in the average price computation. Thus, if one firm falters in the share price, the value of the entire index can deteriorate. E.g., in 2008, the value of the AIG fell from $451 to $54 due to the financial crisisFinancial CrisisThe term "financial crisis" refers to a situation in which the market's key financial assets experience a sharp decline in market value over a relatively short period of time, or when leading businesses are unable to pay their enormous debt, or when financing institutions face a liquidity crunch and are unable to return money to depositors, all of which cause panic in the capital markets and among investors., and the market, in turn, fell by 3,000 points.
- The rise and fall of the NASDAQ stock market depend largely on the technology sector’s performance. Still, in the case of DJIA, the operation is focused on the 30 major companies as a group and not as individual stocks.
- NASDAQ stock market has three different market tiers, namely: –
- The capital market (Small capSmall CapSmall cap stocks are offered by relatively small companies that are publicly listed. A small cap company has a low market capitalization ranging between $300 million to $2 billion. Small cap investors have a high-risk, high-reward approach.), an equity market for companies with small market capitalization and listing requirements, is less stringent.
- Global Market (Mid Cap) consists of around 1,500 stocks representing NASDAQ global markets and have to meet strict financial and liquidityLiquidityLiquidity is the ease of converting assets or securities into cash. requirements. In addition, it is also required to meet equivalent Corporate Governance Standards.
- Global Stock Market (Large CapLarge CapLarge-cap stocks refer to stocks of large companies with value, also known as the market capitalization of 10 billion dollars or more, and these stocks are less risky than others and are stable. They also pay a good dividend and return, and it is the safest option to invest.) is a market capitalization-weighted index of U.S.-based and international stocks. It has met more stringent requirements than the mid-cap stocks and is more exclusive than the others. The listing department periodically reviews the performance and the rules governing the stocks in this category.
On the other hand, Investment in DJIA is Accessible Through
- ETF (Exchange Trade fundsExchange Trade FundsAn exchange-traded fund (ETF) is a security that contains many types of securities such as bonds, stocks, commodities, and so on, and that trades on the exchange like a stock, with the price fluctuating many times throughout the day when the exchange-traded fund is bought and sold on the exchange.), including Leverage or Short strategies. Due to improvements in premarket tradingImprovements In Premarket TradingPre-market trading is trading in the stock market, which occurs before the opening of the regular market session (usually 1 to 1.5 hours before the market opens). Many investors and traders observe it to judge the strength and direction of the market to anticipate the regular trading session., ETFs offer a more accurate opening value for the average.
- Futures Contract: Dow futures are critical premarket tools and indicate how the DJIA will open.
- Options Contract.
NASDAQ Quotes are Available at 3 Levels
- Level 1 shows the highest bid and lowest askHighest Bid And Lowest AskThe asking price is the lowest price at which a prospective seller will sell the security. The bid price, on the other hand, is the highest price a prospective buyer is willing to pay for a security, and the bid-ask spread is the difference between them..
- Level 2 displays all public quotes of market makersMarket MakersMarket makers are the financial institution and investment banks which ensures enough amount of liquidity in the market by maintaining enough trading volume in the market so that trading can be done without any problem. and associated information of market dealers who are willing to buy or sell stock and recently executed orders.
- Level 3 is used by market makers to enter their quotes and perform them.
DJIA calculation is computed by taking the sum price of all 30 stocks and dividing them by the Dow Divisor. This divisor gets adjusted concerning DJIA calculation is computed by taking the sum price of all 30 stocks and dividing them by the Dow Divisor. This divisor gets adjusted with respect to stock splitsStock SplitsStock splits refer to the process whereby a company increases its number of shares, reducing the per-share price of the stocks. , spin-offs, or similar structural changes for more accuracy.
NASDAQ vs. Dow Jones Comparative Table
|Basis of Comparison
|Key index indicates stock market performance.
|An electronic marketplace where investors can buy/sell securities.
|Both an index and exchange.
|Only an index of 30 major companies.
|The new index was invented in 1971, although it reserves its crown in an electronic stock exchangeStock ExchangeStock exchange refers to a market that facilitates the buying and selling of listed securities such as public company stocks, exchange-traded funds, debt instruments, options, etc., as per the standard regulations and guidelines—for instance, NYSE and NASDAQ..
|The older index was established in 1896 developed by Charles Dow.
|National Association of Securities Dealers Automated Quotation.
|Dow Jones Industrial Average.
NASDAQ to Dow Jones Ratio
It is an interactive chartInteractive ChartCharts visuals are better in data depiction, but interactivity gets it better. Interactivity is when the user sees specific values in the excel chart in a more effective, efficient and crystal clear way. that shows the ratio of the NASDAQ Composite Index to the DJIA. As reflected in the DJIA, a high ratio indicates a high bullishness since high momentum technology stocks can attract more investor funds than traditional industrial firms. In addition, it is observed that if the stock market index of both Dow and Index is increasing positively in the same direction, it indicates the economy is in good health. Below is an example of the chart indicating the ratio of both indexes. It clearly shows that during 1999-2000, the ratio was very high, which was due to the dot-com bubble incident.
One should note that though both NASDAQ and Dow refer to the market indices, only the NASDAQ where investors can buy and sell stocks. Additionally, an investor can’t trade on the indexes as NASDAQ and DOW represent a mathematical average that people use to understand the market. Instead, investors can purchase index fundsIndex FundsIndex Funds are passive funds that pool investments into selected securities. or ETFs (exchange-traded funds).
This article has been a guide to NASDAQ vs. Dow Jones. Here, we discuss the top differences between NASDAQ and Dow Jones, infographics, and a comparison table. You may also have a look at the following articles: –