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What is the NASDAQ Composite Index

09 Mar 2023

You have probably heard of the NASDAQ Composite several times, but have had to ask, “What is NASDAQ?” Several folks are clueless as to what the acronym indicates, but you should know about it simply because you may be an investor. As this is a stock index that has a significant influence on global markets, investors can benefit from being aware of aspects of the NASDAQ Composite, as it is called. 

What is NASDAQ?

Initially, NASDAQ was used as an acronym that stood for the “National Association of Securities Dealers Automated Quotations”. As it functions now, the NASDAQ Composite is an international electronically run marketplace to buy and sell securities. It started its business operations in 1971, through an entity, NASD, or the National Association of Securities Dealers. This authority is now called the Financial Industry Regulatory Authority (FINRA). 

NASDAQ has since emerged as the world’s first exchange which is fully operated electronically since its inception. The NASDAQ Composite is made up of 29 markets, five central security depositories, and one clearing house. It is not just connected to the US marketplace and its exchanges, but also tied to European exchanges. So, besides being a place for secure transactions, it functions as much more. When you open a demat account in India, and say, you want to invest in some great global companies, you will find them on the NASDAQ. 

What is NASDAQ? An index or a marketplace?

The acronym, NASDAQ, is used very casually, and you may still be prompted to ask, “What is NASDAQ?” Well, you could say that it is both. It all depends on how you use it. The term is often used to indicate the NASDAQ Composite. This is the index of the NASDAQ. The index is composed of over 3,700 stocks that are listed on the NASDAQ exchange. These include substantially large technology companies like Apple Inc. (AAPL), the parent of Google, Alphabet (GOOG, GOOGL), Meta Platforms Inc. (META), and Microsoft (MSFT). Tesla Inc. (TSLA) and Amazon.com Inc. (AMZN) are also among the key players here. 

As an Indian investor, you may be interested in investing in the Indian markets more, searching for an upcoming IPO. However, nowadays Indians are looking towards foreign markets as they see substantial growth potential there. Setting your sights on the NASDAQ Composite may prove beneficial to you. First, you must know more about it. Officially, NASDAQ separated itself from the NASD in 2006. By 2015, NASDAQ Inc. was popularly recognized as an exchange dealing with national and international company stocks. 

Some Basics About the NASDAQ

Have you found the answer to the question, “What is the NASDAQ index?” By now, you probably have a better understanding of it. Still, here are some facts about the NASDAQ that you should be aware of before delving into the NASDAQ Composite:

  • The NASDAQ has its headquarters in New York.
  • It is responsible for operating 29 markets, and thus, enables the trading of shares and stocks, commodities, derivatives, and fixed income in the U.S.A., Canada, the Baltics, and Scandinavia. 
  • NASDAQ Inc. manages one large clearing house plus central security depositories (five) within the U.S.A. and Europe. 
  • The NASDAQ Composite is used by traders all over the world as a benchmark for the movement of international markets and trading tactics. 
  • The technology of the NASDAQ is made use of 50 countries and some 100 exchanges. 

Delving Deep into the NASDAQ Composite

Let’s get one thing clear. The NASDAQ Composite is an index. It plays an important role in measuring the performance of over 3,000 securities. These securities are listed on the NASDAQ market. The NASDAQ Composite is a famously cited index of stocks along with other indices like the S&P 500 (listing 500 of the most profitable international companies across sectors/industries), or the Dow Jones Industrial Average. 

The NASDAQ, in particular, is well known for the vast amount of technology-related stocks of companies. So, in response to the question, what is the NASDAQ index, you know that is like any other index which you must know about in India, like the NIFTY, but only much larger. There is a smaller index, the NASDAQ 100, which measures the performance of 100 big non-financial companies, positioned on the NASDAQ exchange according to market capitalization. 

What are the companies in the NASDAQ Composite index? 

You probably know that an index refers to a basket of stocks that potentially represent a particular sector in the stock market. Typically, an index measures the performance of a group of stocks which are intended to replicate particular areas of the market. Hence, the NASDAQ Composite, which is largely made up of technology stocks, could tell you about the overall performance of the technology sector as a whole. 

As recently as December 2022, around half of the NASDAQ Composite comprised companies belonging to the technology sector. Although this may not be a good benchmark for technology stocks, as is argued by analysts, it gives investors a clue about technology stock performance. Other stocks that the index is made up of include consumer stocks, healthcare stocks, and even some financial stocks. 

What is NASDAQ and how is it important for investors?

After you have gained some knowledge about what the NASDAQ is, you have probably got a clue regarding its relevance. The index is weighted by the market capitalization of the top companies (mostly from the technology sector). This translates to the fact that companies weighted in the index are done so according to their outstanding share value. The weightings of companies change according to the performance of the share prices of the company. Right now, Apple stands as the most valued company and accounts for 12% of the NASDAQ Composite, roughly. Investment and fund managers use the NASDAQ Composite as a method of measuring the performance of a fund or other stocks. For Indian investors, investing in NASDAQ companies gives them a truly global level of exposure and big gains. 

Get a Grip on NASDAQ

As far as Indian investors are concerned, the first step into stock markets is to open a demat account. Once you have done that, you can invest in direct equity, or consider an upcoming IPO subscription. Indian investors have exposure to international markets with the NASDAQ Composite and positive opportunities to invest in profitable companies overseas.

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