by John Border

NASDAQ is relatively young but has been giving NYSE a run for its money. NASDAQ operates very differently than the NYSE as it works on a method called the double auction method. In this method the highest bidder competes with all the bidders on a buy and same goes for a sell.

As it happens in real world the borker or the dealer is assumed to have some shares as well as some cash. So when the order comes up for fulfillment each broker is assumed to have an inventory which will need to be cleared at various prices. This is similar in the real world when you need to buy something you visit a shop .

The NASDAQ has two kinds or orders and these orders are the limit order as well as the market order. For market order you are willing to pay any price and for limit order you pay only the price till the limit you have set. As an example let say you want to buy 1000 shares then the dealer may have only 500 shares to sell it to you. He will procure rest 500 shares for you. But for the first 500 shares you will get one price and for the next 500 shares you will get a different price.

NASDAQ as you can see is the interdealer market represented by securities dealers and these dealers are called market makers. These dealers then compete with each other to post their best prices (both bid and ask). A normal non professional person can have access to this bid offers, ask size, size of each offer and they are called level II quotes. The system that provide the quotes is called Small Order Execution System.

As small investors NASDAQ is the one which provides a very option for trading apart from American Stock Exchange.

If you need to trade in penny stocks then what you need is trading in OTCBB. But be careful as penny stock trading is very risky and volatile.

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