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.

As it happens in real world the borker or the dealer is assumed to have soem shares as well as some cash. So when the order comes up for fulfillment each broker isassumed to have an inventory whihc will need to be cleared at various prices. This is similar in the real world when you need to buy something you visit shop to shop.

Now there are two types of orders market order and limit order. Let us say that you have a limit order which means that you are neither willing to buy above that set limit nor willing to sell below that price. Market order means that you are saying that at whatever price the dealer is holding the inventory the system should go ahead an buy that. So what happens when the dealer only has 500 shares and you place an order for buying 1000 shares at market price? For the fulfillment of this order you will get 500 shares of the order at the stated price and another 500 shares at the price the dealer says it got somebody to sell the shares to you. Now this price may be higher or below the price at which you got the initial 500 shares.

Market makers is the term used in NASDAQ. Market maker is a person who sells and buys shares and they keep on postinmg both bid and ask prices. You can also have access to these bid offers via a system called the SOES which is Small Order Execution System

NASDAQ is geared towards providing the small investors a favorable trading environment. On the other hand American Exchange also provides some options for small investors.

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.