Difference Between Dow and NASDAQ

Edited by Diffzy | Updated on: September 21, 2022

       

Difference Between Dow and NASDAQ Difference Between Dow and NASDAQ

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Introduction

The stock market/stock exchange is a vast place to see and understand the world of investment and plays a crucial role in developing the economy of a nation. A stock market is a marketplace where the shares of a company can be bought and sold freely. A stock market index is an index that measures a stock market, or a subset of the stock market, that helps investors compare current stock price levels with past prices. This helps to calculate market performance. Two standard U.S. stock market indices are Dow and NASDAQ. Both are widely followed and referred to by investors. They are theoretical snapshots of the equities market that can provide investors with an idea of how the stock market is performing. They also offer a gist of the economy's trends. Dow Jones Industrial Average (DJIA), widely known as Dow, is a stock market index. NASDAQ, also known as the National Association of Securities Dealers Automated Quotients Exchange, is an electronic exchange system. NASDAQ is also an index. Thus, it is used in two different ways, i.e., Exchange and an index that presents a specific portion of the market. This article attempts to demonstrate the key differences between the two terms in a tabular form as well as in points. It also aims to explain both concepts in detail.

Dow vs NASDAQ

The critical difference between Dow Jones and Nasdaq is based on their functions. Dow Jones is an average of the market that represents the market trend at the present time, whereas Nasdaq provides a platform for the Exchange of shares without suffering the hassle of being on the physical floor. Dow Jones Industrial Average is widely known for its short form-Dow. National Association of Securities Dealers Automated Quotients is widely known as NASDAQ. Dow is only a stock market index, while NASDAQ is a stock market index and an online stock exchange. Transfer of shares is not possible on Dow, while it is possible on NASDAQ. Dow tracks the 30 biggest companies for its stock market index, while NASDAQ tracks 3500 companies for its stock market index. Companies are taken into consideration for Dow based on their earnings, i.e., the stock price. NASDAQ, on the other hand, includes companies based on the technologies. NASDAQ is based on the company's outstanding stock value, i.e., on multiple companies' index market capitalization. Dow Jones is a price-weighted average index. This implies that any stock split

or adjustment will not be considered in the average price computation. Therefore, if one firm falters in the share price, the value of the entire index can deteriorate. The fall and rise of the value of the NASDAQ stock market depend mainly on the technology sector's performance. The performance of Dow, on the other hand, is focused on the 30 major companies as a group and not as individual stocks.

Difference Between Dow and NASDAQ in Tabular Form

Table: Dow vs NASDAQ
Parameters of Comparison
Dow
NASDAQ
Definition
Dow is a stock market index of companies listed on stock exchanges in the United States.
NASDAQ is a stock market index and a stock market-based in New York City.
Full form
Dow's complete form is Dow Jones Industrial Average.
NASDAQ's complete form is the National Association of Securities Dealers Automated Quotients Exchange.
Functions
Dow is a stock market index.
NASDAQ performs the functions of Dow and additional tasks that Dow does not execute.
Aim
Dow is a stock market index for U.S. stocks.
NASDAQ is a stock market index and a marketplace for the trading of shares and securities on the U.S. stock exchange.
Number of companies
Dow only tracks the 30 biggest companies for the indication.
NASDAQ tracks 3500 companies for the indication application of Nasdaq.
Types of companies
Companies are taken into consideration for Dow based on their earnings, i.e., the stock price.
NASDAQ includes companies based on the technologies
Founded
Dow was founded in the year 1896 by Charles Dow, Edward T. Jones, and Charles Berkstresser.
NASDAQ was established in the year 1971 as a successor to Over The Counter trading.
Volatility
The volatility of the Dow Jones stock index is low. This is because it consists of the top 30 companies by sector, and hence these blue-chip companies contribute low volatility.
NASDAQ 100 is more volatile when compared to Dow Jones because of the high-risk and growth-oriented companies
Calculation
Dow Jones is a price-weighted index. This implies that the companies with higher stock prices will be given greater weight (implying greater importance). The effect of stock splits and mergers is taken into account by addition or subtraction to the index.
The value of NASDAQ  is based on the average Market capitalization (Price * Outstanding shares) of the companies on the index.

What is Dow?

Dow, also known as Dow Jones Industrial Average, is a stock market index of companies listed on stock exchanges in the United States. Dow tracks the 30 biggest companies for the calculation of its stock market index. Companies are taken into consideration for Dow based on their earnings, i.e., the stock price. It was formed and founded in the year 1896 by Charles Dow, Edward T. Jones, and Charles Berkstresser. The volatility of Dow Jones is low as it consists of the top 30 companies according to their sector. Thus, these blue-chip companies contribute to low volatility.

Dow Jones is a price-weighted index. This indicates that the companies with higher stock prices are being given greater weight. The effect of stock splits and mergers is considered by addition or subtraction to the index. Therefore if one firm falters in the share price, the value of the entire index can deteriorate.

How is Investment in Dow accessible?

  1. ETF (Exchange-traded funds), including Leverage or Short strategies- Due to improvements in premarket trading, Exchange-traded funds offer a more accurate opening value for the average.
  2. Futures Contract-Dow futures are critical premarket tools and indicate how the DJIA will open.
  3. Options Contract.

How is the value of Dow calculated?

Dow calculation is computed by taking the sum price of all 30 stocks and dividing them by the Dow Divisor. This divisor gets adjusted concerning Dow calculation is calculated by taking the sum price of all 30 stocks that are included in the index followed by dividing them by the Dow Divisor. The Dow divisor gets adjusted with respect to stock splits, spin-offs, or similar structural changes for more accuracy.

Companies included in Dow

American Express Co, Amgen, Apple Inc, Boeing Co, Caterpillar Inc, Cisco Systems, Chevron Corp, Goldman Sachs Group, Home Depot Inc, Honeywell International Inc, International Business Machines Corp, Intel Corp, Johnson & Johnson, Coca-Cola Co, JP Morgan Chase & Co, McDonald's Corp     MCD, 3M Co, Merck & Co Inc, Microsoft Corp, Nike Inc, Procter & Gamble Co, Travelers Companies Inc, UnitedHealth Group Inc, Salesforce Inc, Verizon Communications Inc, Visa Inc, Walgreens Boots Alliance Inc, Walmart, Walt Disney Co and Dow Inc are the companies included in the calculation of Dow as on June 2022.

Is it possible to buy shares in Dow?

It is possible to buy shares in the Dow through exchange-traded funds (ETFs). However, it is not possible to invest directly in the Dow Jones Industrial Average because it is just an index and not a marketplace for the trading of shares and securities. (unlike NASDAQ)

What is NASDAQ?

NASDAQ, also referred to as the National Association of Securities Dealers Automated Quotients Exchange, is a stock market index and a stock market based in New York City for the trading of shares and securities listed on the U.S. stock exchange. It tracks 3500 companies for the indication application of NASDAQ. It includes companies based on the technologies. It was established in 1971 as a successor to Over counter trading.

Calculation of NASDAQ

The calculation of NASDAQ is based on the average Market capitalization (Price * Outstanding shares) of the companies on the index.

Market Tiers of NASDAQ

The NASDAQ stock market has three different market tiers. They are:

  1. The capital market (small cap)- This is an equity market for companies with a small market capitalization as well as listing requirements. It is comparatively less stringent.
  2. Global Market (Mid Cap)-This consists of around 1,500 stocks representing NASDAQ global markets and must meet strict financial and liquidity requirements. Further, it is also required to meet equivalent Corporate Governance Standards.
  3. Global Stock Market (large-cap)- This is a market capitalization-weighted index of U.S. and international stocks. It has more stringent requirements than mid-cap stocks. It is also more exclusive than the others. The listing department regularly reviews the performance and the rules governing the stocks in this category.

NASDAQ quotes are available at three different levels:

  1. Level 1- This level shows the highest bid and lowest ask.
  2. Level 2- This level demonstrates all public quotes of market makers and related information of market dealers who are willing to trade in stock and readily execute orders.
  3. The level 3-This level is used by market makers to enter their quotes and perform them.

Main Differences Between Dow and NASDAQ In Points

  1. Dow is a stock market index OF companies listed on stock exchanges in the United States. NASDAQ is a stock market index and a stock market-based in New York City.
  2. Dow's complete form is Dow Jones Industrial Average; on the other hand, NASDAQ's complete form is The National Association Of Securities Dealers Automated Quotients (Exchange).
  3. The Dow Jones is a stock market index, while NASDAQ performs the functions of Dow and additional tasks that Dow does not execute.
  4. Dow is a stock market index for U.S. stocks. NASDAQ is a stock market index and a marketplace for the trading of shares and securities on the U.S. stock exchange.
  5. Dow only tracks the 30 biggest companies for the indication. NASDAQ tracks 3500 companies for the indication application of Nasdaq.
  6. Companies are taken into consideration for Dow based on their earnings, i.e., the stock price, while NASDAQ includes companies based on the technologies.
  7. Dow was founded in 1896 by Charles Dow, Edward T. Jones, and Charles Berkstresser. NASDAQ was established in the year 1971 as a successor to Over counter trading.
  8. The volatility of Dow Jones is low. This is because it consists of the top 30 companies by sector, and hence these blue-chip companies contribute low volatility. NASDAQ 100 is more volatile when compared to Dow Jones because of the high-risk and growth-oriented companies
  9. Dow Jones is a price-weighted index. This means that the companies with higher stock prices are being given greater weight (implying greater importance). The effect of stock splits and mergers is considered by addition or subtraction to the index. The value of the NASDAQ index is based on the average Market capitalization, which is calculated as (Price * Outstanding shares) of those companies on the index.
  10. The fall and rise of the NASDAQ stock market depend mainly on the technology sector's performance. The performance of Dow, on the other hand, is focused on the 30 major companies as a group and not as individual stocks.

Conclusion

A stock market is a marketplace where the shares of a company can be bought and sold freely. A stock market index is an index that measures a stock market, or a subset of the stock market, that helps investors compare current stock price levels with past prices. This helps to calculate market performance. Two standard U.S. stock market indices are Dow and NASDAQ. Although both NASDAQ and Dow refer to the stock market indices, investors can buy and sell stocks only on NASDAQ. Further, investors cannot trade on the indexes as NASDAQ and DOW represent a mathematical average that people use to understand the market. Dow Jones Industrial Average (DJIA), which is commonly referred to as Dow, is a stock market index. NASDAQ is an electronic exchange system that is the short form for the National Association of Securities Dealers Automated Quotients (Exchange). NASDAQ is also a stock market index. Thus, it is used in two different ways, i.e., Exchange and an index that presents a specific portion of the market. This article has attempted to explain the critical differences between both concepts. It has also described its idea of Dow in detail and demonstrated its calculation. Further, it has also explained the idea of NASDAQ in detail, its tiers and levels in simple terms.

References

  1. www.wallstreetmojo.com
  2. www.educba.com

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