Difference Between NASDAQ and Dow Jones
NASDAQ and Dow Jones have been used interchangeably but actually have different meanings.
- Dow refers to Dow Jones Industrial Average (DJIA) which is a crucial stock market index across the globe.
- NASDAQ, on the other hand, refers to National Association of Securities Dealers Automated Quotients Exchange which is an electronic exchange system.
NASDAQ vs Dow Jones Infographics
Here are the top 4 difference between NASDAQ vs Dow Jones
Key Differences
- NASDAQ is a stock market index of the US that contains around 3,000 companies whereas the DJIA comprises 30 major companies belonging to the 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 around the earnings of the companies and they may be pulled off if the stock prices falter.
- NASDAQ is based on the value of the company’s outstanding stock i.e. on the market capitalization average of multiple companies on the index. Dow Jones is a price-weighted average index indicating that any type of stock split 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. For e.g. in 2008, the value of the AIG fell from $451 to $54 due to the financial crisis and the market, in turn, fell by 3,000 points.
- The rise and fall of the NASDAQ stock market depend largely on the performance of the technology sector but in the case of DJIA, the performance is focussed on the 30 major companies as a group and not as individual stocks.
- NASDAQ stock market has 3 different market tiers namely:
- Capital market (Small cap) which is an equity market for companies with small levels of market capitalization and listing requirement is less stringent.
- Global Market (Midcap) consists of around 1,500 stocks representing Nasdaq global markets and have to meet strict financial and liquidity requirements. It’s also required to meet equivalent Corporate Governance Standards.
- Global Stock Market (Large Cap) is a market capitalization-weighted index made up of US-based and international stocks. It has met more stringent requirements in comparison to the mid-cap stocks and is more exclusive compared to 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 funds) including Leverage or Short strategies. Due to improvements in pre-market trading, ETFs offer a more accurate opening value for the average.
- Futures Contract: Dow futures are one of the most critical premarket tools and indicate how the DJIA will open.
- Options Contract
NASDAQ Quotes are Available at 3 Levels
- Level 1 which shows the highest bid and lowest ask
- Level 2 displays all public quotes of market makers 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 allowing them to enter their quotes and execute 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 with respect to stock splits, spin-offs, or other such similar structural changes for more accuracy.
NASDAQ vs Dow Jones Comparative Table
| Basis of Comparison | NASDAQ | Dow Jones |
| Meaning | Key index indicating stock market performance | An electronic marketplace where investors can buy/sell securities. |
| Index/Exchange | Both an index and exchange | Only an index of 30 major companies |
| Existence | The new index invented in 1971 although it reserves its crown in an electronic stock exchange. | Older index established in 1896 developed by Charles Dow |
| Abbreviation | National Association of Securities Dealers Automated Quotation | Dow Jones Industrial Average |
NASDAQ to Dow Jones Ratio
It is an interactive chart that shows the ratio of the NASDAQ Composite Index to the DJIA. A high ratio indicates the high level of bullishness since high momentum technology stocks can attract many more investor funds than traditional industrial firms as reflected in the DJIA. It is observed that if the stock market index of both Dow and Index is increasing positively in the same direction, it is an indication of the economy in good health. Below is an example of the chart indicating the ratio of both the indexes. It clearly shows that during 1999-2000, the ratio was very high which was due to the dot-com bubble incident.
source: macrotrends.net
Conclusion
One should note that though both NASDAQ and Dow refer to the market indices, it’s 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 make use of for understanding the market. Investors can purchase index funds or ETF (exchange-traded funds).
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