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Why NASDAQ Is More Volatile Than NYSE

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Many everyday investors look at NASDAQ as the home of volatility, sky-high price-to-earnings ratios, and potentially substantial losses but even bigger wins. As of December 10, 2013 the S&P 500 (comprising mostly NYSE stocks) was up 27.51% year to date, the DJIA was up 23.83%, but NASDAQ was up a whopping 34.29%. Somebody who is pushing NASDAQ might also point out that, while the DJIA and S&P 500 have exceeded their all time high in 2013 and then pulled back, the NASDAQ is still far below its peak set during the dot-com bubble.

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So what does this mean to you, as an investor or trader looking for maximum gains with reasonable risk? Does it really make a difference whether an individual stock is traded on the NYSE or NASDAQ?

Let’s look at some facts:

  • Traditionally, NASDAQ (the initials used to stand for National Association of Securities Dealers Automated Quotations, but NASDAQ says its role has extended far beyond its quote-service roots) was the place where young startups went to sell their stocks, while NYSE (New York Stock Exchange) was the place for more established companies. NASDAQ was the Wild West, NYSE was pinstripes.
  • blog-shutterstock_47506069These stereotypes that exits are true to an extent, partially because NASDAQ listing fees were lower and more attractive to cash-poor new companies, while NYSE was the older and more established exchange with many prestigious companies whose listings dated back to the 1800s. It was considered a sign of maturity when a company moved from NASDAQ to NYSE, as Oracle (ORC) did this year.
  • Things are changing. In 2006 NYSE had just 10% of all IPOs; through October 2013 the split was 50/50 between the two exchanges. And the final blow to NASDAQ’s maverick reputation may have come when Twitter (TWTR) chose to list on the senior exchange. (The train wreck of Facebook’s IPO on NASDAQ may also have had an influence, of course.)
  • The real reason NASDAQ looks like the home of the high-fliers is not that its stocks are inherently more volatile, but that it has fewer conservative stocks to temper overall volatility. If you compared only the tech sector on the two exchanges, for example, performance would probably look much more alike.

At Online Trading Company, investors learn that the most important thing about a stock is its price—past, present and future price expectations based on our patent-pending rules-based strategy. A candle is a candle is a candle, regardless of the exchange on which the stock is listed; in fact, your candlestick chart might not even include the exchange’s name in the description of the stock. For maximum potential gains, don’t worry about whether it’s a NASDAQ or a NYSE stock; pay attention to supply and demand zones that work the same across all markets and all asset classes.

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.