- Date : 24/12/2022
- Read: 3 mins
People frequently confuse the distinctions between terms like 'the Dow Jones' and 'NASDAQ' by using them in the same context. A market index of stocks is known as the Dow Jones Industrial Average, whereas the National Association of Securities Dealers Automated Quotients Exchange; Nasdaq is an electronically traded system that also denotes an index.
Many of us use Apple phones and laptops, like to jog in our Nike shoes, sip coffee from Starbucks and munch on a McDonald’s burger. But we rarely talk about their share prices. This is because all these American multinational corporations are listed on stock exchanges in the USA. Like the Bombay Stock Exchange and the National Stock Exchange, there are a few important stock exchanges in the US too.
Did you know that you can invest in American stocks from India too? This can be done directly through an overseas trading account, or indirectly through mutual funds and exchange-traded funds. But before doing so, you must familiarize yourself with the places where these stocks are traded. Two of the most important stock indices where you can monitor top US stocks are Dow Jones and the Nasdaq index.
Also read: 25 stock market terms for beginners
What are the key differences between Nasdaq and Dow Jones?
You may hear the term 'Dow' all the time in media reports about the US market. It stands for the Dow Jones Industrial Average (DJIA), a significant indicator that many investors track to monitor the US stock market. Charles Dow, Edward T. Jones, and Charles Berkstresser created Dow Jones in 1896. The Dow Jones index tracks 30 of the largest publicly traded American corporations, which are traded on leading American stock exchanges like the New York Stock Exchange (NYSE) and Nasdaq.
Alongside NYSE, Nasdaq is the leading stock exchange in the world by market capitalization. It stands for National Association of Securities Dealers Automated Quotations and was launched in 1971. Its index, the Nasdaq Composite consists of almost all stocks listed on the Nasdaq stock exchange. The Nasdaq 100, on the other hand, is an index made up of the top 100 companies listed on Nasdaq.
You may have already gathered that Dow Jones and Nasdaq are not to be used interchangeably. Here are the key differences between these two terms:
- The main contrast between these two is that Dow Jones is an index based on companies listed on Nasdaq and the NYSE. Nasdaq is a stock exchange, with several indices based upon it, including the aforementioned Nasdaq Composite and Nasdaq 100.
- Leading technology companies like Apple, Google, Amazon etc. are listed on the NASDAQ stock exchange. Besides, more than 3500 companies are listed on Nasdaq. Dow Jones consists of 30 companies listed in either or both NYSE and Nasdaq. It is a dynamic list and can change as the top 30 companies in the US change in their stature.
- Companies are included in the Nasdaq indices based on their market capitalisation and outstanding value of the stock. Companies included in the Dow Jones index are selected based on their price-weighted average stock.
- Due to the significant presence of technology heavyweights as well as growth companies, Nasdaq is sensitive to the developments in the IT world. As a result, it is more volatile than the Dow Jones index. Dow is comprised of companies from various stocks. Due to its diversified composition, it is comparatively less volatile.
Also read: Get familiar with these stock market terms
Depending on your investment plans you may have to monitor either Dow Jones or Nasdaq indices, or both. Do remember that they trade on the other side of the world. So, have a peek at these indices around your bedtime and early morning to track the US market regularly.