What is NSE and BSE in stock market?

If you wish to become an investor, you may be familiar with stock markets and stock exchanges; nevertheless, you may be wondering what the NSE and BSE are. To comprehend something, let us first comprehend a stock, also known as a share, is one of the total parts of a company; therefore, if you possess some stocks in a firm, you are a part owner. As a result, a share has some monetary worth, and a firm can raise funds by issuing shares to the general public.

So, where does this issue of shares take place? We call this platform as stock exchange. A stock exchange is a regulated market where traders can buy and sell stock in various companies.

The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are India’s two primary stock exchanges (BSE). Let’s find out more about them.

What is NSE?

The National Stock Exchange, or NSE, is India’s largest stock exchange. It is the world’s fourth largest (based on equity trading volume). It was the first stock exchange in India to offer a screen-based trading system, and it was founded in 1992 in Mumbai.

India’s National Stock Exchange Limited trading occurs through market orders that are matched by trading machines. Market makers or specialists do not participate in the trading process. When an investor makes a market order, it is assigned a unique number, and the trading computer instantly matches it with a limit order, meanwhile the sellers and purchasers remain anonymous.

If no match is detected, the order is added to a list of orders to be matched in a sequence dictated by price-time precedence. The order with the lowest price is given priority, while the order with the highest price is given precedence.

The NSE was founded with the intention of bringing openness to the Indian market system, and it has done so admirably. The NSE successfully provides services such as trading, clearing, and debt and equity settlement to domestic and foreign investors with the help of the government.

What is BSE?

The Bombay Stock Exchange, or BSE, is far older than its cousin NSE. It was the first stock exchange in Asia. The BSE is the world’s quickest stock exchange, with a trading speed of 6 microseconds.

The BSE has an intriguing history. In the nineteenth century, a man named Premchand Roychand established the Native Share and Stock Brokers Association. It used to operate on

Dalal Street, behind a banyan tree, where dealers would assemble to purchase and sell stocks. The network grew gradually, and the exchange was renamed the Bombay Stock Exchange in 1875. BSE ltd is also listed on stock exchange and current share price of BSE Ltd is around Rs 670.

What are Stock Market Indices?

The trading mechanisms of the NSE and BSE are similar. Investors and traders use their brokers to connect to the exchanges and place buy or sell orders. What factors influence their trading strategy? You’ve probably heard the terms ‘Nifty’ and ‘Sensex.’ Both are indices, with the former representing the NSE and the latter the BSE. These indices are critical to the operation of these exchanges.

The indexes are an indicator of the health of the stocks traded on these exchanges (and, given their size, an indicator of the health of the Indian economy as well).

A collection of 50 NSE companies (and 30 stocks in BSE) have been chosen based on their company’s profile, market capitalization, and relevance to be part of a weighted formula that provides us the index’s ‘worth.’ If any of these stock values rise, the value of the Nifty and Sensex rises. If prices fall, so do the Nifty and Sensex.

That’s all well and good, but what exactly do these stock exchanges do?

Functions of a stock exchange

If a company wants to raise funds from investors, it must first be listed on the stock exchange, which it does through an IPO. The company creates shares and sells them at a set price. The shareholders of the company are the investors who purchase the shares.

A fixed amount of dividend (profit, in layman’s terms) is paid to investors for each share. If the company expands, so does the dividend, and vice versa. If the company continues to grow, it will attract additional investors, necessitating the issuance of more shares.

All of these transactions take place under the supervision of a regulating entity known as a stock exchange, such as the NSE and BSE. Companies list their stock on these markets, and investors purchase it.

Why are companies listed on stock exchanges? (Advantages of listing on stock exchanges)

1.  Trading transparency and automation:

High-tech trading technology gives investors a frictionless experience. Because of the high volume of trading on the exchanges, the investor pays a reduced impact cost. Automation increases transparency in transactions, which boosts investor confidence.

2.  Fast transaction speed:

Before the invention of online trading systems, there was a significant delay in trade executions, which has been fully eliminated by high speed trading platforms. Transaction efficiency has grown dramatically as a result of the exchange’s fast speed.

3.  Broad Reach:

Online trading platforms are accessible from everywhere in the country. Following its listing on the market, the company has increased visibility, and the general public has equal access to this platform for investment purposes.

Should one trade on the BSE or the NSE?

Despite the fact that the BSE has a significantly larger number of companies listed than the NSE, the NSE dominates in terms of trading volume. Price discovery gets significantly easier as large volumes of NSE trade. The price of shares fluctuates between the NSE and the BSE; therefore, before purchasing a stock, compare the price on both exchanges and make your decision appropriately. Keep in mind that just a few company shares are traded on the BSE only.

Once you understand the distinction between the NSE and the BSE, you will find it easier to invest in the stock market since you will be able to choose where you want to buy or sell shares.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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