NYSE versus Nasdaq: What the difference is between the world's two largest stock exchanges

When people talk about the stock market, they often refer to it as Wall Street. That's in part because that street in lower Manhattan is home to the world's largest stock exchange: The New York Stock Exchange.

But that's not the only exchange in the city. About four miles north is the second-largest one in the world, and the first electronic market in the world: Nasdaq, short for National Association of Securities Dealers Automated Quotations.

When U.S.-based companies decide to make the transition from private to public, they debut their initial public offerings (IPOs) on one of these exchanges. And every day, there are bell-ringing ceremonies at both the New York Stock Exchange, or NYSE, and Nasdaq to signify the open and close of the market hours.

So, what's the difference between these exchanges? Here's what you need to know.

The most significant difference between the New York Stock Exchange and Nasdaq is how buyers and sellers trade securities. NYSE facilitates and operates like an auction market, while Nasdaq creates the market for trades via what's known as a dealer.

Here's what that means:

• Auction market. At NYSE and other stock exchanges, trades are executed by matching the bids submitted by buyers and sellers. The highest bid, or the amount a buyer is willing to pay, is matched with the lowest asking price among sellers.
• Dealer market. At Nasdaq, trades are executed through a dealer rather than directly between the buyer and the seller. The dealer, also known as a market maker, arranges the trades on behalf of buyers and sellers. A computer acts as the dealer and at Nasdaq, all trades are executed electronically in fractions of seconds.

As an investor, you likely won't notice any difference if you were to trade a stock or exchange-traded fund (ETF) on either Nasdaq or NYSE. That's because the common goal of these exchanges is to ensure trades can be executed in a seamless and orderly fashion.

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The New York Stock Exchange was founded in 1792 to give buyers and sellers a place to exchange securities. While a majority of trading is executed electronically today, there's still plenty of action that takes place on the trading floor.

Nasdaq was founded in 1971 as the world's first electronic stock market. That means you won't find any humans executing trades at this exchange: The process is all done by computers. The Nasdaq building has become a prominent fixture in New York's Times Square neighborhood.

As the elder of the two exchanges, NYSE counts among its ranks some of the oldest publicly traded U.S. companies.

There's an easy way to figure out which stocks are listed on which exchange: Look at the number of letters in the ticker symbol that's assigned to every publicly traded company.

While this isn't an exact science, typically those companies with one-, two- or three-letter symbols — like Ford (F), Coca Cola (KO), and JPMorgan (JPM) — are listed on the New York Stock Exchange. Meanwhile, companies with a four-letter ticker symbol — such as Costco (COST), Microsoft (MSFT), and Starbucks (SBUX) — are listed on Nasdaq.

There are some exceptions, however. Facebook (FB) debuted as a public company on Nasdaq back in 2012 with its two-letter ticker, while Snap (SNAP) went public with its four-letter ticker on the New York Stock Exchange in 2017.

Generally speaking, Nasdaq has been the place for tech stocks to go public. That popular group of fast-growing stocks nicknamed FAANG, which stands for Facebook, Amazon, Apple, Netflix, and Google parent Alphabet, all are listed on Nasdaq.

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It's not just stocks that are listed on these exchanges. ETFs are a growing part of the listings on the two marketplaces, and combined, Nasdaq and NYSE are are home to thousands of such funds.

A final important distinction: Nasdaq has its own benchmark. While the S&P 500 and Dow Jones Industrial Average track some of the largest U.S. companies, irrespective of which exchange they're listed on, another commonly cited index just tracks the Nasdaq cohort. This index, the Nasdaq Composite, is made up of more than 3,000 companies that are listed on the Nasdaq exchange.

When a company is preparing an IPO, it might be wooed by both exchanges — and they may find merits in being listed on one versus the other. There is a significant cost difference between the two, with NYSE charging both a higher fee for a new IPO and higher annual fees relative to Nasdaq. As a result, a majority of the biggest listings in recent years have occurred on the New York Stock Exchange.

Finally, it's possible for companies to be listed on more than one exchange. It's more common to find examples of this happening with non-U.S. companies, like Alibaba, which decided to go public in the U.S. stock market back in 2014 — and then listed on the Hong Kong Stock Exchange in November 2019. That said, some U.S. companies like Charles Schwab and Hewlett-Packard have experimented with listing their stock on both Nasdaq and NYSE.

The past decade has been a busy time for IPO activity, which means both exchanges will continue to grow in the future.

More from Grow:

• How the stock market works — here's everything you need to know
• 5 of the biggest IPOs of the past decade
• What it's like to ring the bell at the New York Stock Exchange