Beginners Guide To NASDAQ
NASDAQ though called an exchange works in method called double action whereby the highest bidder buyer competes with all other buyers and the same thing happens for the sellers. NASDAQ as an exchange is not very old but has been giving good competition to the established exchange like the NYSE.
Now for NASDAQ the auction method does not work, it is like a series of dealers which are selling stocks and each dealer has some sort of inventory of stocks as well as cash. Now NASDAQ is completely automated so going by above analogy you do not visit each dealer shop instead the computer system visits the store of each dealer and checks what prices and how much shares does each dealer have to satisfy an order.
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.
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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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