What are the Differences Between Nasdaq and Dow Jones?

Difference Between Nasdaq and Dow Jones: An Overview

In our daily life, we consume US products such as Apple phones, Nike shoes, and Meta applications on our smartphones. If we are the consumers of these products, we can also become the owner of these companies. Investing in the US stock market helps you to diversify your investments across different geographical locations. However, the stock market is associated with risks. So, before investing in the US share market make sure that you understand the basics of the share market. In this article, we are going to learn about Nasdaq and Dow Jones, the difference between Dow Jones and Nasdaq, and how to invest in Nasdaq and Dow Jones.

What are Dow Jones and Nasdaq?

Dow Jones was founded in 1896 by Edward T Jones, Charles Dow, and Charles Berkstresser. The index consists of 30 large companies in the USA. These companies are well-known names and popular in every household.  This index is traded on both NYSE and NASDAQ. It is followed by investors all around the world to get an idea of the global stock market. 

NASDAQ full form is National Association of Securities Dealers Automated Quotations. It was founded in 1971. Moreover, the trading volume in this exchange is the highest in the world and this is the reason the volatility is also high. It is one of the most popular and largest stock exchanges by market capitalization in the world followed by NYSE. Nasdaq includes the largest technology stocks in the world such as Apple, Google, Meta, Amazon, etc. 

Key Takeaways

• Dow Jones and Nasdaq are popular indexes of the US stock market that consist of stocks belonging to different sectors. Apart from these two indexes, there are other indexes as well which are popular such as S&P 500 and Russell 2000. 
• The major and leading stock exchanges of the US stock market are NYSE (New york stock exchange) and NASDAQ. 
• The trading hour in the US market starts from 9:30 AM in the morning to 4:00 PM in the evening. 

Nasdaq Vs Dow Jones: What's the Difference?

The major difference between these two indexes is that Nasdaq is a stock exchange and Dow Jones is an index. 

1. Nasdaq was incorporated in 1971 and Dow Jones was incorporated in 1896. 
2. The trading platform of the NASDAQ index is NASDAQ. On the other hand, the trading platform of Dow Jones is NASDAQ and NYSE. 
3. Nasdaq is a leading stock exchange in the US. It consists of the Nasdaq index and there are more than 3500 stocks that are traded in this index. On the other hand, Dow Jones is an index that consists of the top 30 companies that are well-established. 
4. The stocks that are listed on Nasdaq are mostly technology stocks and are in their growth phase. Whereas stocks that are listed on Dow Jones are not permanent. The stocks can be removed from the index if they fail to meet the parameters. 
5. Nasdaq is based on the company's market capitalization and outstanding value of the stock. On the other hand, the Dow Jones index is based on a price-weighted average index. It means any split in the shares of the company or a change is considered in the calculation. 
6. The performance of the Nasdaq is determined by the performance of technology sector stocks. Hence, the volatility is more and is riskier than the Dow Jones index. Whereas the performance of the Dow Jones index is determined by the performance of 30 companies. Since these companies are from different market capitalizations and sectors, the volatility in the index is less and the risk is low. 
7. The Nasdaq investment quotes are accessible at 3 levels. The first level has top bids and the lowest ask, the second level has quotes from market makers who want to sell the stock and the third level is utilized by market makers. On the other hand, investors can invest in Dow Jones through options contracts and ETF Futures contracts. 

(Data as of 17th November 2022)

How to invest in Nasdaq and Dow Jones?

Before investing in the US market, it is important to understand what is Dow Jones and Nasdaq and the difference between Dow Jones and Nasdaq. 

There are various Indian brokers that allow you to invest in Nasdaq and Dow Jones-listed stocks such as INDmoney. All you have to do is open an account. Some of the popular funds that invest in US stocks are Motilal Oswal NASDAQ 100 ETF, Nippon India US Equity Opportunities Fund, and ICICI Prudential Nasdaq 100 index fund.  You can invest in Nasdaq and Dow Jones through mutual funds, ETFs, and index funds that are focused on one of these indexes. 

Conclusion

Nasdaq and Dow Jones are market indices. So, you can not trade directly in the index. However, you can trade in their index funds as they track and invest in the stocks that are listed in the index. Moreover, you can invest through trading in ETFs. Since the share price of US companies is comparatively high and is less affordable for retail investors in India. However, they allow you to buy fractional shares and you can invest from as little as Rs. 500. 

This is not an investment advisory. The blog is for information purposes only. Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, goal, time frame, risk and reward balance, and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs. The performance and returns of any investment portfolio can neither be predicted nor guaranteed.