Are you new to the stock market? Are you wondering how stocks are listed or traded and from where you can buy these stocks or other securities? Don’t worry, we have heard you and that’s why this article is going to cover all the important aspects of both the important stock exchanges in India which are – the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
What is a Stock Exchange?
Before we dig into NSE and BSE, let us understand what a stock exchange is. So, a stock exchange can be defined as a market where the companies are the vendors and the investors/ traders are the buyers. The companies list their stocks on the stock exchange after they come up with an IPO.
Once the IPO is launched by a company, and it is subscribed, approved and allotted, the stocks are listed. Now the investors who purchase stocks in the IPO, they become shareholders of the company. This means they own a portion of the company against which they have purchased stocks.
Now, stock exchanges play an important role not only in listing the stocks as listing via IPO is the first step but then once the stocks are with investors, they can themselves buy and sell on the exchange with each other. So, the stock exchange facilitates both the companies and the investors.
Now as you have understood what is a stock exchange, understanding NSE and BSE will be easy. These two are nothing but two of the largest stock exchanges in the economy.
What is Index?
An index shows how the stock market is performing overall. With many stocks listed, tracking them one by one can be tough. An index simplifies this by grouping companies based on size, sector, or industry. It gives a clear view of market trends and investor feelings.
In India, Nifty is the main index for the NSE, consisting of 50 major stocks. Sensex represents the BSE with 30 significant stocks. The index value is calculated using Weighted Average Market Capitalisation. When stock prices rise, the index increases; when prices fall, the index decreases. This reflects market performance.
What is NSE?
NSE or National Stock Exchange is the largest stock exchange in India with around 2137 stocks listed on it as per data of March 31st, 2023. The total market capitalization of all these stocks is close to Rs. 2519504.61 crores as per the same data report of NSE. As per market capitalisation, the top ten stocks on NSE include Reliance Industries, TCS, HDFC Bank, ICICI Bank, HUL, Infosys and others. Investors and traders can trade currency derivatives, equity derivatives, debt instruments as well along with stocks.
What is BSE?
BSE or Bombay Stock Exchange is older than NSE as well, to be exact, it is the oldest stock exchange in the entire Asia. In the year, 1875, BSE was established but the name of the institution then was Native Share and Stock Brokers’ Association. As per current data, there are 5258 companies listed on BSE and the total market capitalization stands at Rs. 23232910.18 crores.
How Do These Stock Exchanges Work?
Both NSE and BSE function in the same manner and their main objective is to facilitate buyers and sellers in the stock market. When an investor places an order, the stock exchange receives the information from the broker of the investor.
Then the stock exchange starts searching for orders from the opposite side to match this order. Once the order matches, the order gets executed. Now the stock exchange sends information to the broker of both the buyer and seller about the trade and the transaction taking place thereon.
Let’s understand this with an example, suppose there are 4 buyers for Stock A and 5 sellers for the same stocks. The bids placed by them are as follows –
| No. | Buyers | Sellers |
|---|---|---|
| 1. | 100 | 120 |
| 2. | 102 | 116 |
| 3. | 103 | 112 |
| 4. | 105 | 109 |
| 5. | – | 105 |
Now as you can see in the above table, the highest bid placed for buying stock A is Rs. 105 per share, by buyer no. 4, while seller no. 5 has placed the lowest bid for selling the same stock at Rs. 105. Now, suppose, this trade is taking place on NSE, so, the stock exchange will match buyer 4 with seller 5, and the trade will get executed at Rs. 105.
Apart from matching trades, these stock exchanges also do much crucial work and one such is building and maintaining the stock indices such as Nifty or BSE Sensex.
These indices act as standards for investors and traders and help them understand whether the return generated by their investment portfolio or stocks or any other securities they have invested in are as per market or not.
How to Trade on NSE and BSE?
Whether you want to trade on NSE or BSE, the steps are the same and those are:
- Firstly, you need to open a Demat account and a trading account. You can open these accounts with Findoc for a hassle-free paperless account opening process.
- Then you need to submit the documents for KYC verification. Once the KYC is verified, the account will be operable.
- Now, you need to download the trading platforms you want to trade from. Whether it is a mobile trading place like StockZ or a trading terminal.
- Then set it up with the stocks and other assets you want to track and trade.
- You can now place orders for the securities you want.
- However, before you start trading or investing on NSE or BSE, make sure, you learn about the transaction charges and other charges to make a correct estimate of your earnings.
Benefits of Getting Listed on BSE and NSE
Listing on the BSE and NSE has several advantages for companies, including raising capital and building credibility. It also provides safer and more transparent opportunities for investors.
- Better fundraising: Once a company lists its shares, its financials are in the public domain, fostering investor confidence and enabling it to raise funds more easily. Both exchanges offer a readily available market with numerous buyers, allowing companies to raise money with ease.
- Strict regulatory governance: SEBI regulates listed companies to adhere to guidelines that are revised from time to time to avoid fraud and misrepresentation. Compliance reduces investors’ risks and builds the company’s reputation.
- Clear information dissemination: Companies are required to disclose information such as revenue, dividends, reinvestment schemes, and bonus issues, allowing investors to make decisions accordingly.
- Access to loans using shares: Listed shares can be used as collateral with banks or financial institutions, helping companies and investors secure funding for new ventures.
Similarities in the BSE and NSE
While BSE and NSE differ in size and trading activity, they share several important features that make them equally important for India’s financial markets:
- Both are recognised stock exchanges regulated by the Securities and Exchange Board of India (SEBI).
- They provide a platform for companies to raise capital by listing shares and securities.
- Both exchanges allow trading in equities, derivatives, debt instruments, ETFs, and mutual funds.
- They operate on a fully electronic trading system, ensuring transparency and efficiency in transactions.
- Both have a pre-open session prior to the regular market hours for prices to stabilise.
- Both have benchmark indices—Sensex for BSE and NSE has Nifty, which indicates the overall market trend.
- They also play an important role in price discovery and liquidity, facilitating buyers and sellers to trade smoothly.
- Investors can use both exchanges with the same trading and Demat accounts.
Which Exchange is Better: NSE or BSE
Both NSE and BSE serve different types of investors. The right choice depends on your trading style, goals, and the kind of companies you want to invest in.
- NSE is preferable if, as a trader, for most active traders, NSE would be the preferred option. It has greater liquidity, quicker execution, and a strong derivatives market. Institutional investors, day traders, and those trading in futures and options often prefer NSE because of its efficiency and its ability to handle large trading volumes.
- BSE is better if you want a variety of companies. As a long-term investor seeking a diverse selection, BSE could be the best choice. It has the largest number of listings in India, with numerous mid-cap and small-cap companies listed. Retail investors looking for diversification, heritage businesses, and stable equity investments tend to prefer BSE for the creation of a diversified portfolio.
Which Exchange Should Investors Transact In, Nse Vs Bse?
NSE or BSE is your choice, and it would be based on your investment goals and preferences. If you like active trading, derivatives, and high liquidity, NSE is likely to be more appropriate due to faster execution and higher volumes. If you prefer long-term holdings, wider listings, and exposure to a large number of mid-cap and small-cap companies, BSE is the preferred choice. Both exchanges are safe, regulated, and accessible via the same trading account.
Difference Between NSE and BSE
The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are India’s leading stock exchanges, each with distinct characteristics in history, size, trading volumes, and investor preference.
Conclusion
Both the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are an integral part of the stock market in India and in traders’ and investors’ life. While NSE has become the largest stock exchange in the country, BSE is the oldest in the continent offering the best of the services to the investors and traders to up the stock market game in the economy.
Frequently Asked Questions
NSE trading means purchasing and selling stocks, derivatives, and other securities on the National Stock Exchange. It is India’s largest and highly liquid stock exchange with sophisticated electronic systems.
Trade on NSE by opening a Demat and trading account with a broker, doing KYC, using the broker’s platform, and entering buy or sell orders electronically.
Yes, if the stock is listed on both exchanges. Selling on the BSE and buying on the NSE is no problem at all, since settlements are processed centrally through your Demat account.
NSE is used for active trading and derivatives, and BSE is better for long-term investors who have more companies listed. Both are safe, regulated, and accessible from the same trading account.
BSE is an acronym for Bombay Stock Exchange, formed in 1875 as Asia’s oldest stock exchange. NSE is an acronym for National Stock Exchange, established in 1992 with fully electronic trading mechanisms.
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