How does NASDAQ Work?
As NASDAQ is an electronic exchange, it doesn’t have any trade floors. The exchange itself plays the role of a dealers’ market. Rather than buying from each other, brokers buy directly from the market maker. A market maker holds specific stock and holds a certain amount of that stock in their books. When a broker wants to purchase shares, they approach the market maker for that purchase. The buyers and sellers will electronically enter the trades they require with their broker-dealers, and those trades will come into the NASDAQ system through hundreds of computers, now with the matching engine which on the NASDAQ exchange is a single and highly reliable computer will execute the trade.
NASDAQ also features a price/time priority model where the execution is fair and transparent for all market stakeholders. All displayed limit orders are treated equally and executed in the exact order in which they were actually received at the same price. Non-displayed shares are executed after the execution of all displayed shares in the order in which they were received at that exact same price. NASDAQ offers popular orders and functionality to market participants such as Minimum Quantity, Mid-Point Peg and Post Only orders, Self Match Prevention and Order Modify functionality, which is a robust suite of innovative routing strategies and framework. NASDAQ’s equity order types are designed to help market participants comply with regulations and execute a range of trading strategies.