NYSE & NASDAQ: Investing in the World's Leading Market Exchanges - Essay Sample

Introduction

The New York Securities Exchange (NYSE) and National Association of Securities Dealers Automated Quotation (NASDAQ) are among the most significant market exchanges in the world. The two markets deal with investment tools such as stock, commodities, mutual funds, and bonds. The NYSE is a physical trading market where transactions are conducted through auctioning while NASDAQ is a telecommunications network where purchases are made through an electronic system.

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Investment Instruments

Stocks

The stock market is made up of different stocks tied to a variety of company shares which are linked to different market indexes. The performance of company stocks is measured using stock indexes which are monitored and trade in different exchange markets depending on the country. The stock market usually fluctuates depending on various factors such as industry performance, trade wars, and political unrest.

The performance of stocks in the two markets differs mostly due to the structural difference of the markets. Dividends are the cash returns a shareholder gets annually from the company's profits. Companies that are listed for trade-in NYSE are usually stable companies that have been in existence for a long while companies listed on NASDAQ are new growing companies. Many growing companies don't issue dividends to shareholders as they prefer to invest the profit earned back into the company. Due to this, stocks traded on the NYSE will have higher dividend gains compared to those sold on NASDAQ. Although most companies in NASDAQ indexes that offer dividends usually offer low dividend yield such as Cosco which has an average dividend yield of 1%.

Return on stocks traded in NYSE is generally quite high since they include dividends and the shares are not as volatile as those being sold on NASDAQ. Reports by Regnum state that all securities traded in NYSE have a 6% higher ROI compared to securities of the same value traded in NASDAQ.

Capital gains on stocks depend on whether the shares are short- term or long term in nature. Long term stocks attract a lower tax rate compared to short term stocks. The capital tax gains associated with stocks usually affect the price of commodities. The concept of foreign exchange consideration arises when one invests in stocks, mutual funds, and bonds abroad. Such investments fluctuate as currency changes. Currently, China and the US are in trade wars; investors who had invested in both countries will face a foreign market exchange risk loss.

Mutual Funds

Mutual funds usually come in many forms, such as index funds and portfolio funds. Index funds don't need to active trading since they are directly tied to a find which has an index base. Since they based on significant market indexes, they tend to fluctuate as the market fluctuates. Portfolio funds allow an investor to diversify their funds by investing in different industries in the stock exchange market. Due to this, portfolio funds require active trading. Index funds can never underperform or over perform in comparison to their indexes. Portfolio funds, however, can perform better than their base indexes since they are made up of multiple stocks from different indexes.

Bonds

The most common bonds traded in the markets are municipal bonds and corporate bonds. Historically, bonds usually yield small but consistent earnings. Unlike the stock market, the bond market is characterized by a lack of transparency and information. Most bonds are bought through secondary markets. This practice has led to the need for creating an electronic platform that can facilitate the exchange of bonds. NASDAQ trading model is automated, making it best suited for exchanging bonds. While NYSE offers to only exchange corporate bonds, NASDAQ offers to trade different types of bonds and bills such as treasury bonds in different countries. An investor wishing to exchange bonds through NASDAQ must be a member of the NASDAQ Nordic group.

Commodities

Commodities are natural and necessary materials which are used in the manufacture and processing of goods and services. Tradable products in today's market include metals, agriculture, energy, livestock, and meat. The law of demand and supply governs the performance of the commodities market example if the need for power is high, then the price will increase. NYSE Life is the arm of the NYSE that deals with the exchange of commodities. It trades commodities in the agriculture and soft category. NASDAQ began trading commodities in 2008 and exchanges commodities in all four types.

Analysis of Returns

Although trading on NASDAQ is choosing to deal with volatile shares, they have high yields since they have a enormous potential to grow mainly because most are technology companies. Investors who want to invest solely on technology should choose NASDAQ since it lists stocks from tech companies without involving other non-tech companies. NASDAQ also offers an extensive investment portfolio to choose from compared to NYSE.

Where to list:

NASDAQ is the best platform for companies to list their stocks. This because it offers to exchange a variety of investment tools from stocks to bonds. It also has affordable listing charges compared to NYSE, which is very expensive. The nature of the market is also conducive for growing companies and tech companies.

Movement of Instruments

Currently, NASDAQ's composite is moving in a better direction compared to NYSE's Dows. NASDAQ's composite fell by 0.6% but moved up by 22% while the Dows dropped to 0.2% and touched up with 15%. Treasury bonds have lower yields this year on all marker exchange organizations. NYSE doesn't exchange treasury bonds. Therefore, it did not suffer this blow. Due to current trade wars between China and the US, commodities on both markets have increased their value since the stock market has been decreasing investors are turning to products.

Analysis of Risks

Trading stock through NYSE has fewer risks compared to NASDAQ. This is because NYSE only lists companies who have been in the industry for long and whose shares are stable. The volatile nature of stocks on NASDAQ can be witnessed when the stocks on NASDAQ went down after the White House released a recording of Trump's phone call to Ukraine's president. At the time, the NYSE's index was at -0.54% while that of NASDAQ was at -1.04%.

How Tradeoffs Affect Listing?

Since the stock market is quite sensitive, most investors are currently pulling out stocks and investing in mutual funds and commodes like gold. Current trade wars between China and the US have made many investors prefer to invest in other instruments which are more stable even though their returns are lower.

Effect of Inflation and Interest Rate

Inflation can either cause negative or positive effects for stocks that are trading. For an investor to get the best out of increase, they need to carefully consider the economic situation when investing. During economic contraction, there tends to be a positive relationship between stocks and inflation. Inflation also works well for volatile stock movements which are present in NASDAQ. Shares traded on NASDAQ are usually volatile since they are from young growing companies compared to shares on NYSE, which are very stable. An investor should, therefore, sell stocks on NASDAQ when the economy is contracting, and inflation is present. Bond yield decreases as the interest rate rises. NYSE deals with purchasing corporate bonds while NASDAQ offers a variety of bonds in different countries. An investor should trade his bonds using NASDAQ since they provide various types of bonds in different countries, therefore, diversifying his risk of being affected by increasing income rates. During inflation, the prices of commodities increase and this increase speculating where investors rush to buy the commodity experiencing inflation in hopes of selling it at a higher price.

Taxation Effect on IPOS

Currently, most companies prefer to list for IPOs on NASDAQ rather than NYSE. This is because NASDAQ offers affordable listing charges. Due to tax cuts implemented in January 2018, it is predicted that companies will have a difficult time attaining the previous year's earnings. Due to this, most companies prefer to list on NASDAQ, which has affordable listing fees. According to critiques of the tax cuts, only the wealthy corporations will benefit from the tax cuts.

References

Bence, v. a. (2019). retrieved 25 September 2019, from https://finance.zacks.com/stock-vs-bond-returns-4603.html

Brien. (2019). NADAQ dividends: history, yields, payers, and more. from https://www.dividend.com/how-to-invest/the-nasdaq-a-dividend-overview/Nyse rules. (2019), from http://wallstreet.cch.com/nyse/

Stewart.e. (2019). How to double your bond returns. from https://www.nasdaq.com/articles/how-double-your-bond-returns-2017-11-29