I have a question! What’s the different between S&P, NASDAQ and all those other exchanges?

Jennifer

Hi Jennifer,

Your question is a great one, possibly for more reasons than you know.

First, exchanges are places where stocks get traded–like the New York stock exchange, London exchange, etc. Now, the Nasdaq is an exchange, but the S&P is not. I think what you are actually asking (and correct me if I am wrong) is…what is the difference between the Dow, S&P, Nasdaq and all those other indexes (really it’s indices).

An index is set up to measure the performance of the overall market each day. Basically, you take a bunch of stocks and monitor their performance coming up with a weighted average and then you assume based on your sample that it is an appropriate indication of the direction of the entire market. So, if the Dow is up you assume most stocks will be up that day.

The difference between these indices is the amount and type of stocks they are made up of. The Dow is the most popular index and is made up of only 30 stocks. These 30 stocks are large companies, they range in industry and are widely held–so they are traded by many people. The S&P is made up of 500 stocks. Because it has more stocks, the S&P is able to represent a wider range of sectors than the Dow.  You’ll notice that the S&P does not generally move as….um….hugely as the Dow which, to me, makes it a more accurate assessment of what your individual portfolio will do on a particular day.

Later,

Yo