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NASDAQ: An Introduction
Have you ever wondered how stock exchanges work? I mean have you ever asked yourself how millions of different stocks that have millions of buyers and sellers trading probably thousands or even millions of shares of stock that have varying bids and asks find their way with one another with the bids and asks matching up? Have you thought of how quotes are determined and who determines them? If you have asked yourself these questions or may be you are just curious for the answers then read on as I explain how stock exchanges work.
You probably know that stocks are bought and sold not in your backyard or in the office but in a place called the stock exchange. There are major stock exchanges in the United States namely the New York Stock Exchange (NYSE), the American Stock Exchange (Amex) and the National Association of Securities Dealers Automated Quotations System (NASDAQ). If a corporation wants to trade its stocks publicly then it has to register with the Securities and Exchange Commission and choose of a stock exchange it wants to be traded on. For purposes of this discussion I will focus and explain how NASDAQ works. There are already thousands of corporations that have chosen NASDAQ as the place they want to be traded and listed in.
To provide for an efficient stock exchange, NASDAQ makes use of three important components namely: the interface, the matching engine and the quote services. The interface is the area where your brokers and the market makers are placed to have access to the stock exchange system. The matching engine, as the name may suggest, is a specially programmed computer than can match the asks and bids of the sellers and the buyers to complete a stock exchange transaction. The quote services consist in providing the buying and selling price quotes. Quotes, which are intentionally tardy by twenty minutes, show the ask and bid prices and the last transactions.
To understand how stock prices and quotes are determined, I will explain how the matching engine works since the matching engine outputs the stock quotes. As I have mentioned earlier there are probably thousands of buyers and sellers of stocks. Each of them has brokers and each of the brokers have computers. These thousands of computers are hooked up in the matching engine. The matching engine sifts through all of the asks and bids for all of the thousands of brokers and matches those asks and bids. The matching engine probably creates millions of price matches everyday. The matched prices are then sent back by the matching engine to the broker's computer and to the quote servers that are interested in quotes.
The process may seem simple in paper but in reality it is much more complicated. But despite of this seeming simplicity at least I was able to show you how NASDAQ works. I hope you were able to learn something new about stock exchanges and that this discussion answered your earlier queries. Happy trading.
You probably know that stocks are bought and sold not in your backyard or in the office but in a place called the stock exchange. There are major stock exchanges in the United States namely the New York Stock Exchange (NYSE), the American Stock Exchange (Amex) and the National Association of Securities Dealers Automated Quotations System (NASDAQ). If a corporation wants to trade its stocks publicly then it has to register with the Securities and Exchange Commission and choose of a stock exchange it wants to be traded on. For purposes of this discussion I will focus and explain how NASDAQ works. There are already thousands of corporations that have chosen NASDAQ as the place they want to be traded and listed in.
To provide for an efficient stock exchange, NASDAQ makes use of three important components namely: the interface, the matching engine and the quote services. The interface is the area where your brokers and the market makers are placed to have access to the stock exchange system. The matching engine, as the name may suggest, is a specially programmed computer than can match the asks and bids of the sellers and the buyers to complete a stock exchange transaction. The quote services consist in providing the buying and selling price quotes. Quotes, which are intentionally tardy by twenty minutes, show the ask and bid prices and the last transactions.
To understand how stock prices and quotes are determined, I will explain how the matching engine works since the matching engine outputs the stock quotes. As I have mentioned earlier there are probably thousands of buyers and sellers of stocks. Each of them has brokers and each of the brokers have computers. These thousands of computers are hooked up in the matching engine. The matching engine sifts through all of the asks and bids for all of the thousands of brokers and matches those asks and bids. The matching engine probably creates millions of price matches everyday. The matched prices are then sent back by the matching engine to the broker's computer and to the quote servers that are interested in quotes.
The process may seem simple in paper but in reality it is much more complicated. But despite of this seeming simplicity at least I was able to show you how NASDAQ works. I hope you were able to learn something new about stock exchanges and that this discussion answered your earlier queries. Happy trading.
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