Trading on the Nasdaq

November 14, 2012

What is NASDAQ?

NASDAQ stands for National Association of Securities Dealers Automated Quotations. However, the name for this exchange has been changed to just “NASDAQ”. This is where the stocks known as the “technology stocks” (Apple, Microsoft, Google, etc) are all listed and traded even though in reality, there are stocks that are not even related to the technology market which are traded on the NASDAQ. In terms of market capitalization, NASDAQ is the 2nd largest stock exchange in the world. NASDAQ is presently owned by the NASDAQ OMX Group.

Origins

NASDAQ commenced operations in 1971 as the first electronically operated stock exchange. NASDAQ operated initially as a computer bulletin board which was able to help bring down the spreads in stock transactions. NASDAQ was formed as a modified version of the Over the Counter (OTC) trading exchange, and over the years it metamorphosed from merely being a modified OTC system to a full-blown stock exchange where traders and dealers can buy and sell stocks, with volume computations and the use of fully automated trading systems.

As a stock index asset, NASDAQ is known as the NASDAQ 100 Composite index. Three levels of price quoting are available on the NASDAQ. There is the basic level price quoting system which shows the buy and sell prices for a stock, a Level II quoting system which shows market depth and order flows of market makers and other traders, and a Level II quote system available exclusively to market makers for their own trades and executions.

NASDAQ currently operates 18 markets in Europe and 6 in the United States of America, as well as three clearing houses.

What Makes Up The NASDAQ

There are more than 3,000 listed stocks on NASDAQ. Stocks on the NASDAQ are traded within the following sectors:

  • Building – Residential & Comm
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  • Finance – Mortgage & Rel Svs
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  • Building Prds Retail – Wsale
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  • Building & Construction – Misc
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  • Computer – Mini
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  • Building – CMT & CNT & AG
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  • Medical – Nursing Homes
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  • Glass Products
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  • Retail – Jewelry
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  • Paint & Related Products
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  • Building Prdcts – Air Heating
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  • Retail – Home Furniture
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  • Cable TV
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  • Textile – Home Furnishings
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  • Beverages – Soft
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  • Building Products – Wood
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  • Real Estate Developers
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  • Chemical – Plastics
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  • Electronic Misc Services
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  • Tools – Hand Held
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  • Finance – Misc Services
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  • Computer – Mainframe
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  • Banks – West
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  • Banks – Midwest
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  • Banks – Southwest
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  • Banks – Southeast
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  • Oil – Refining and Marketing
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  • Retail – Regional Dept Stores
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  • Finance – Savings & Loan
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  • REIT – Mortgage Trusts
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  • Finance – Consumer Loans
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  • Leisure & Recreation Services
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  • Furniture
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  • Containers – Paper Products
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  • Leisure & Recreational Prdcts
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  • Medical Information Systems
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  • Internet Software Services
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  • Appliances – Household
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  • Medical Services
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  • Metal Products – Fasteners
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  • Publishing – Newspapers
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  • Communication Network Software
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  • REIT – Equity Trust Retail
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  • Steel – Pipe & Tube
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  • Insurance – Proprty & Casualty
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  • Insurance – Accident & Health
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  • Banks – Northeast
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  • Funeral Services & Related
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  • Oil Refining & Marketing MLP
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  • Media Conglomerates
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  • Financial Transaction Services
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  • Large Cap Pharma
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  • Agriculture Products
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  • Cosmetics & Toiletries
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  • ETFs – Consumer Discretionary
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  • Building – Mobile Homes & RV
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  • ETFs – Biotech
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  • Banks – Major Regional
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  • Chemical – Specialty
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  • Hotels & Motels
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  • Beverages – Alcohol
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  • Insurance – Life
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  • Medical – Hospitals
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  • Finance – SBIC & Commercial
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  • Insurance – Multi Line
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  • Food Items – Wholesale
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  • Retail – Wsale Auto & Trucks
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  • Movie & TV Production & Dist
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  • Broadcast – Radio & TV
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  • Finance – Leasing Companies
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  • Oil – C$ Integrated
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  • Uniform & Related
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  • ETFs – Grains
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  • Oil Gas Prod Pipeline MLP
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  • REIT – Equity Trust Other
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  • Medical – Biomedical
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  • Transportation – Rail
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  • Business Office Products
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  • Electrical Construction
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  • ETFs – Real Estate
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  • ETFs – Financial Services
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  • Precious Metals & Jewelry
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  • Textile – Products
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  • Medical – Drugs
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  • Medical – HMO
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  • Retail – Convenience Stores
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  • Building – Maint & Service
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  • Medical – Outpatient & Hm Care
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  • Building – Heavy Construction
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  • Aerospace – Defense
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  • Finance – Investment Funds
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  • Fertilizers
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  • Transportation – Airline
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  • Business Services
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  • Retail – Misc & Diversified
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  • Indices S&P 100
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  • Retail – Discount
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  • Semi Radio Frequency
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  • Technology Services
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  • Consumer Prdts – Misc Staple
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  • Business Software Services
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  • Semi-Eqpt Wafer Companies
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  • Insurance – Brokers
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  • Electronics – Connectors
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  • ETFs – Consumer Non-Cyclical
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  • Utility – Water Supply
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  • Real Estate Operations
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  • ETFs – Large Cap
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  • ETFs – Construction
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  • Indices S&P 500
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  • Machinery – Farm
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  • Indices Industrials
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  • Satellite Communication
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  • Retail – Restaurants
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  • Paper & Related Products
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  • Indices S&P 600
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  • ETFs – Defense
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  • Oil – Production & Pipeline
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  • Retail – Apparel & Shoes
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  • Outsourcing
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  • ETFs – Healthcare
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  • Machinery – Material Handling
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  • Industrial Services
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  • Medical Products
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  • ETFs – Hotels & Gambling
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  • Government Services
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  • Indices S&P 400
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  • Conglomerates – Div Operations
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  • Auto – Truck Replacement Parts
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  • Transportation – Equip & Lease
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  • Finance – Investment Mgmt
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  • Machinery – Electrical
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  • Electronics – Measuring Inst
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  • ETFs – Multi Cap
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  • ETFs – Industrials
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  • Medical – Dental Suppliers
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  • ETFs – Mid Cap
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  • ETFs – Taxable Bonds
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  • Internet Commerce
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  • ETFs – Utilities
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  • ETFs – Non-Taxable Bonds
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  • ETFs – Small Cap
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  • ETFs – Mixed Asset
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  • Engineering & R&D Services
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  • Publishing – Books
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  • ETFs – Telecommunications
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  • ETFs – Bonds
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  • ETFs – Income
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  • Retail – Drug Stores
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  • Food – Misc & Diversified
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  • Indices Utilities
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  • Machinery – Thermal Processing
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  • Industrial Controls
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  • Indices Composite
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  • Computer – Software
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  • Rubber Tires
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  • Containers – Metal & Glass
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  • Auction Valuation Services
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  • Waste Removal Svcs
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  • Industrial Scientific
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  • Tobacco
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  • ETFs – Managed ETFs
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  • Machinery – General Industrial
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  • Semi Fab Foundries
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  • Soap and Cleaning Products
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  • Food – Confectionery
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  • Indices Nasdaq 100
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  • IT Services
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  • Semi-Eqpt Wafer Fabrication
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  • Consumer Prdts – Misc Discr
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  • Utility – Electric Power
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  • Computer – Services
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  • Electrical Power
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  • REIT – Equity Trust Resident
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  • Internet – Software
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  • Transportation – Services
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  • Wire & Cable Products
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  • Semi Analog & Mixed
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  • Chemical – Diversified
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  • Utility – Gas Distribution
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  • Textile – Apparel
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  • Gaming
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  • ETFs – Europe
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  • Electronics Products – Misc
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  • Electronic Test Equipment
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  • Diversified Comm Services
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  • ETFs – International
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  • Securities Exchanges
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  • ETFs – Environmental
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  • Internet – Services
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  • Computer – Integrated Systems
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  • ETFs – Transportation
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  • ETFs – Asia
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  • Wireless Non-US
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  • Medical – Generic Drugs
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  • Oil – International Specialty
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  • Consulting
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  • Medical Instruments
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  • Machinery – Tools & Related
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  • ETFs – Emerging Markets
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  • Lasers – Systems & Components
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  • Machinery – Construct & Mining
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  • Transportation – Truck
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  • ETFs – Technology
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  • Mining – Silver
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  • Rubber & Plastics
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  • Auto – Domestic
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  • ETFs – Precious Metals
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  • Shoes and Related Apparel
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  • ETFs – Agriculture
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  • Retail – Consumer Electronics
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  • ETFs – Currency
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  • Electronics – Parts Distrib
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  • Banks – Foreign
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  • Staffing
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  • Communications Infrastructure
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  • ETFs – Meats
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  • Emerging Markets Integrated
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  • Computer – Micro
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  • Indices Transportations
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  • Retail – Supermarket
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  • Transportation – Air Freight
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  • E&P MLP
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  • ETFs – Materials
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  • Aerospace – Defense Equipment
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  • Agriculture Operations
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  • Retail – Wholesale Auto Parts
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  • Internet Services – Delivery
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  • Mining – Gold
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  • Building Products – Ltg FX
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  • Computers – Peripheral Equpt
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  • ETFs – Consumer Staples
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  • Food – Meat Products
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  • Food – Dairy Products
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  • Electronics – Military
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  • Protection – Safety
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  • Computer – Networks
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  • Printing – Commercial
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  • International E&P
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  • Communications Components
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  • Metal Production & Fabrication
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  • Finance – Investment Brokers
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  • Oil & Gas – Drilling
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  • Semi-Eqpt Material Services
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  • Industrial Robotics
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  • Office Supply & Forms
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  • Oil – Field Services
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  • ETFs – Energy
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  • Advertising Marketing Services
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  • Oil Field Machinery & Equip
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  • ETFs – Commodities General
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  • ETFs – Metals
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  • Business Information
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  • Retail – Mail Order
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  • Consumer Services – Misc
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  • Pollution Controls
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  • Wireline National
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  • Electronics – Misc Components
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  • Retail – Wholesale Computers
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  • Oil – International Integrated
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  • ETFs – Commodities
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  • Internet – Content
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  • Oil – US Exploration & Product
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  • ETFs – Natural Resources
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  • Oil – US Integrated
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  • Publishing – Periodicals
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  • Electrical – Manufacturing
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  • ETFs – Power
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  • Auto – Foreign
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  • Semi Communications
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  • Steel – Producers
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  • Semi Pro Logic Devices
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  • Toys & Game & Hobby
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  • Wireless Rural
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  • Electronics – Semiconductors
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  • Auto – Truck Original Parts
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  • Steel – Specialty
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  • Wireless Equipment
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  • Electronic Manufacturing
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  • Machinery – Printing
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  • Wireline Non-US
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  • Mining – Non Ferrous
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  • Fiber Optics
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  • Other Alt Energy
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  • Semi Memory
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  • Semi Discretes
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  • Audio & Video Products
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  • Coal
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  • Mining – Misc
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  • Wireless National
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  • Wireline Regional
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  • Transportation – Ship
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  • Metal Products – Distribution
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  • Semi Graphical
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  • Semi General
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  • Biofuels
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  • Computer – Storage Devices
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  • Schools
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  • Mining – Iron
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  • Office Automation & Equipment
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  • Semi-Eqpt PhotoMask
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  • Semi Power
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  • Oil – C$ Exploration & Product
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  • Oil – US Royalty Trusts
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  • Engines – Internal Combustion
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  • ETFs – Alternative Investments
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  • Machinery – Elect Utilities
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  • Computer – Optical
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  • Chemical – Fibers
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  • Solar
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  • Nanotechnology
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Trading Times

Trading times on the NASDAQ consist of the pre-hours, trading hours and afterhours trading sessions. The pre-market hours lasts from 0700hrs to 0930hrs EST. The normal trading hours open for traders to buy and sell stocks lasts from 0930hrs to 1600hrs, and the after-hours lasts from 1600hrs to 2000hrs EST.

Pre-market trading allows traders with access to ECNs to get into positions based on market news released after the previous day’s trading session. In order not to get short-changed by market makers who may decide to ignore such orders, a rule by the Financial Industry Regulatory Authority (FINRA), which regulates operations on the NASDAQ, mandates all dealers to compulsorily fulfil all the pre-market orders of its clients before fulfilling theirs.

Trading Stocks on the NASDAQ

Before a trader moves on to the point of trading stocks on the NASDAQ, it is important to get familiar with the stock ticker symbols as well as how the companies are listed, the full list of the companies listed on NASDAQ, trading times, etc.

The starting point of trading assets on NASDAQ is to open a stock trading account either with a full service broker or with a discount stock broker. A discount brokerage cash-only account will require $500 an account opening balance, and $2000 for a cash-plus-margin account. After account opening and verification, the trader will now have access to trade stocks and ETFs on the NASDAQ exchange.

The NASDAQ exchange is not a physical exchange; it is wholly electronic. Therefore access to the exchange requires the use of an online stock trading platform provided by the broker. Trading on the NASDAQ is between traders and dealers (functioning as market makers). The market makers are responsible for ramping up the liquidity in the market so that whenever a buyer wants to buy a stock or an ETF, there would always be a seller to fulfil his order, and whenever the trader wants to sell, there would always be a buyer for his order. It is the job of the market makers to match buyers with sellers, and sellers with buyers.

Stocks traded on NASDAQ are typically penny stocks. These are stocks that are generally priced from $5 a share to about $50 per share. These stocks are stocks which are more volatile with a lot of growth potential.

Stocks and ETFs on the NASDAQ exchange can be purchased on the basis of long orders or short orders. Various order types can be used. A trader can use pending orders such as Entry Limit, Entry Stop, Good till Cancelled (GTC) and Good till Day (GTD) to execute trades.