The NASDAQ stock market, a hub of dynamic trading activity, operates with a unique structure of competing Market Makers. Over 500 firms currently fulfill the role of NASDAQ Market Makers, facilitating the buying and selling of NASDAQ securities at the prices they display. These firms, members of the National Association of Securities Dealers (NASD), engage in transactions for their own accounts, ensuring a fluid and efficient market. Their rapid execution capabilities often complete trades in mere seconds, maintaining a steady flow within the bustling marketplace.
Market Makers play a pivotal role in the NASDAQ ecosystem. As NASD member firms, they are tasked with executing trades from their own inventory or locating the other side of a transaction swiftly. This process ensures liquidity and market efficiency, crucial for investors seeking timely and fair execution of their trades. The presence of such a vast number of Market Makers enhances competition, benefitting traders by narrowing spreads and improving price discovery.
Meanwhile, specialists on national securities exchanges have a distinct role. These securities firms hold exclusive franchises, maintaining orderly markets for specific securities. Unlike NASDAQ Market Makers, specialists focus on ensuring stability in the securities they manage, holding seats on exchanges to oversee market activities.
Day trading on NASDAQ remains an attractive option for many investors. However, it comes with its own set of rules, particularly concerning freeriding. This prohibited practice involves buying a security at a low price and selling it high on the same day, using the sale proceeds to cover the purchase cost. Violations result in severe penalties, including a 90-day freeze on the customer's account.
NASDAQ stocks are subject to daily evaluations based on market conditions. Due to their inherent volatility, some stocks feature initial and maintenance requirements as high as 70%. These requirements serve as safeguards, protecting both investors and the market from excessive risk exposure.
Fast markets pose unique challenges for traders. In such environments, orders for large quantities, such as 10,000 shares, may not execute at expected prices due to rapid fluctuations and order backlogs. Real-time market quotes may fail to reflect actual conditions at the moment an order reaches a Market Maker or specialist. This discrepancy underscores the complexity of trading in fast markets and highlights the necessity for traders to remain vigilant.
Understanding order types is essential for navigating these volatile conditions. Stop limit orders differ from stop orders in two significant ways: they include a limit price and can execute as limit orders if the stop price is reached. Unlike stop orders, which execute at market prices, stop limit orders only execute at the stop price or better, offering traders more control over execution prices.