The stock exchange, or the stock market, is a government-regulated marketplace where you can buy and sell assets like stocks, bonds, and shares. A network of exchanges and other locations where consumers can buy and sell publicly traded corporate stock makes up the stock market. The two forms of financial exchanges are regulated over-the-counter (OTC) markets and structured official exchanges (physical or electronic).
While "stock market" and "stock exchange" are frequently used interchangeably, the latter is a subset of the former. Stock market traders purchase and sell shares on one or more of the stock exchanges that make up the entire stock market. Because the stock market has such a large number of participants, buyers and sellers can expect a fair price and a high level of liquidity because different market participants fight for the best price. The stock market ensures fair pricing procedures and transaction transparency by bringing together hundreds of thousands of people who want to purchase and sell shares. Unlike earlier stock markets, which used paper-based physical share certificates to issue and trade, today's computerized stock exchanges function entirely electronically.
Stock exchanges, in a nutshell, provide a secure and regulated environment in which market participants can trade shares and other qualifying financial items with little to no danger of losing money. The stock markets serve as both primary and secondary markets, as required by the regulator. The stock market, as the main market, permits companies to issue and sell stock to the general public for the first time through an initial public offering (IPO) (IPO). This method aids businesses in obtaining the funds they require from investors. Essentially, a corporation divides itself into a particular number of shares (for example, 20 million) and sells some of those shares to the general public for a set price (for example, $10 per share). A corporation will require a marketplace where these shares can be sold to make this process easier. The stock exchange provides this market. If all goes according to plan, the company will be able to sell its 5 million shares for $10 each, generating $50 million. The company's stock will then be purchased by investors in the hopes of increasing its value or receiving dividend payments, or both.
The primary goals of a stock market are as follows:
Fair dealing in securities transactions is a long-standing concept
The stock exchange must ensure that all interested market participants have timely access to data for all buy and sell orders, resulting in fair and transparent securities pricing, based on established supply and demand criteria. It should also be able to easily match relevant buy and sell orders.
Price Discovery with Ease
Stock exchanges must provide a price discovery system that is both efficient and effective. This relates to one of the markets' most important functions: The price of a stock is set by all of its buyers and sellers working together. For example, an initial public offering (IPO) may be priced at $15, but its true worth could be $12 or $17. Its worth is determined by the stock's demand or lack thereof.
The stock market must ensure that everybody who is competent and wants to trade has immediate access to place orders and that orders are executed at a reasonable cost.
Transaction Security and Validity
The market must verify that all participants are vetted and follow all applicable rules and regulations, leaving no possibility for any of the parties to default. It should also make certain that all related firms operating in the market follow the rules and act within the legal framework established by the regulator.
A great number of wealthy and institutional investors, as well as a large number of small investors, flock to the stock market. Some of these individuals may lack financial knowledge and be uninformed of the dangers of investing in stocks and other publicly traded instruments. As a result, the stock market has implemented several protections to protect investors and sustain consumer trust.
Difference between BSE and NIFTY in Tabular Form
Today, India's two most active stock markets are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) (NSE). Both exchanges are entirely electronic, with a combined total of roughly 7,000 businesses. On each of these exchanges, millions of trades are executed every trading day. Because these are electronic exchanges, you'll need a Demat account to participate in the trading process. Because there are so many companies listed on these exchanges, keeping track of the stock market's movement is almost impossible. As a result, stock exchanges devised the notion of indexes to simplify the procedure. You can discern which way the market is moving by looking at these indices. There are two stock indices in India. To learn more about these two indices, let's look at the differences between them.
|Parameters of Comparison
|The Singapore Stock Exchange (SGX), the Chicago Mercantile Exchange (SME).
|EUREX and the stock exchanges of the BRCS countries.
|Bombay Stock Exchange
|National Stock Exchange Fifty
|NSE subsidiary, IISL.
|Bombay Stock Exchange (BSE).
|Number of Stocks
|Top 30 companies
|Top 50 companies
|Number of sectors
What is BSE?
The Bombay Stock Exchange (BSE), formerly known as the Native Share and Stock Brokers' Association, is India's oldest and largest securities exchange, having been founded in 1875. The Mumbai Stock Exchange (BSE) is one of the world's largest stock exchanges, alongside the New York Stock Exchange (NYSE), NASDAQ, London Stock Exchange Group, Japan Exchange Group, and Shanghai Stock Exchange. The BSE has aided India's capital market development, particularly in the retail debt market, as well as the corporate sector. The BSE was Asia's first stock exchange, offering small and medium-sized businesses a trading opportunity (SME). Other capital market services supplied by the BSE include clearing, settlement, and risk management.
The Sensex, a benchmark index comprising 30 of the BSE's largest and most frequently traded equities across 12 categories, measures the BSE's overall performance. The Sensex is India's oldest stock index, having been established in 1986. The BSE 30 index, sometimes known as the "BSE 30," is a wide representation of the Indian stock market. The BSE has aided the progress of the Indian corporate sector for the past 133 years by providing it with effective access to resources. There isn't a significant Indian company that hasn't used BSE's services to raise money on the stock exchange. BSE is now the world's number one exchange in terms of listed firms and the world’s fifth-largest in terms of transaction volume. On December 31, 2007, the market capitalization was USD 1.79 trillion. An investor can choose from over 4,700 listed companies, which are divided into A, B, S, T, and Z groups for ease of reference.
The BSE is an efficient and transparent market for trading shares, debt instruments, and derivatives. It has a countrywide footprint, with a presence in more than 359 cities and towns across India. BSE has always followed international guidelines. The tools and procedures are meant to safeguard market integrity while also increasing operational transparency. The BSE is India's first and the world's second ISO 9001:2000-certified stock exchange. It is also the first and only exchange in the country to have its BSE On-line Trading System certified under the Information Security Management System Standard BS 7799-2-2002. (BOLT). BSE is constantly coming up with fresh concepts. It is the first national stock exchange to build websites in Gujarati and Hindi to appeal to a broader range of investors. It has successfully established the ICDM, or Indian Corporate Debt Market, a reporting platform for corporate bonds in India, as well as the 'BSE Broadcast,' a unique ticker-cum-screen that enables information delivery to the common man on the street.
The Bombay Stock Exchange's key functions are as follows:
Establishing a Price
The secondary market's price determination is based on the securities' demand and supply. The Bombay Stock Exchange assists in the valuation process by continuously valuing all listed securities. The SENSEX index, which is widely used, can be used to track such share prices.
Contribution to the Economy
The Bombay Stock Exchange deals with the listed securities and these assets are regularly sold and resold, allowing cash to move rather than sit inert, boosting the economy.
Liquidity and Marketability
They have a high level of liquidity since the listed securities can be sold at any time and converted into cash. It runs in the background, and the investor can sell and buy the investment whenever they choose.
What is NIFTY?
NIFTY stands for National Stock Exchange Fifty in its entire form. The NIFTY is a popular NSE (National Stock Exchange) benchmark index that includes equities from 50 different companies from several diversified sectors of the economy. The NIFTY's value is decided by the performance of these stocks, and it is owned and maintained by the NSE indices limited.
It is one of the most liquid stock market indices in the futures and options categories, implying that traders can readily enter and exit their positions. Its adaptability, as this choice can be utilized to implement a variety of tactics, ranging from the most conservative to the riskiest. It is impossible to manipulate because both sides of the deal involve a large number of players. Furthermore, because the National Stock Exchange Fifty is based on 50 stocks, manipulation of such big combinations is often not possible. Because the NIFTY is made up of 50 stocks, a single firm's price reduction has a minor impact on the index as a whole. However, the stock could fall by 20-40% in a single day, resulting in a big loss for the investor. When an investor buys a single stock, he or she must thoroughly review the company's financial documents, but this is not necessary with NIFTY. To trade NIFTY, all you need is a firm grasp of technical analysis.
Because the NIFTY is made up of 50 stocks, a single firm's price reduction has a minor impact on the index as a whole. However, the stock could fall by 20-40% in a single day, resulting in a big loss for the investor. When an investor buys a single stock, he or she must thoroughly review the company's financial documents, but this is not necessary with NIFTY. To trade NIFTY, all you need is a firm grasp of technical analysis.
The key functions
Rebalancing and Reconstitution
Every June and December, the index undergoes a semi-annual rebalancing. The NIFTY 50 index rebalances by removing stocks that would otherwise have lost market capitalization or been suspended or delisted. The deleted stocks are then replaced by emerging stocks with a higher market capitalization. The NIFTY 50's exposure to emerging stocks and sectors is automatically increased as a result of this rebalancing procedure.
Basic Building Blocks
The top 50 large-cap firms are chosen from the NSE universe based on their free-float market capitalization. The free-float market cap is determined by multiplying a company's stock price by the number of freely available shares on the market. For example, the market capitalization of a firm is Rs. 30 lakhs, if it has 1 lakh shares readily available in the market and the price per stock, is Rs. 30.
Liquidity is another important criterion to consider when deciding whether or not to add a stock to the NIFTY 50. What this means is that equities included in the NIFTY 50 index must be simple to purchase and sell, and their trading volume must be large.
Difference between BSE and NIFTY (In Points)
The Sensex and Nifty stock market indices are used to show the stock market's strength. Even though they are practically equally created, there are a few differences between the two market indices.
- The Nifty comes from the 'National Fifty,' whereas the Sensex comes from the 'Sensitive Index.'
- The Sensex is managed by the Bombay Stock Exchange (BSE), while the Nifty is managed by India Index Services Products Ltd. (IISL), a subsidiary of the National Stock Exchange (NSE).
- The Nifty index is made up of 50 selected stocks from the top 50 companies, whilst the Sensex index is made up of 30 picked equities from the top 30 corporations.
- The base index value for the Nifty is 1000, whereas the base index value for the Sensex is 100.
- The benchmark index values for assessing the overall performance of the stock market are the 5-Nifty and the Sensex. The National Stock Exchange uses the Nifty Index, whereas the Bombay Stock Exchange uses the Sensex Index.
All of the world's major stock exchanges have indices that reflect market activity or investor sentiment. The indices are used by common investors to get a sense of market direction. The movement of indexes upward or downward indicates a bullish or bearish trend, accordingly.
Nifty and Sensex are major stock indices in India that determine or portray the stock market's strength. The Sensex is the oldest market index for equities, consisting of shares from the top 30 companies listed on the Bombay Stock Exchange (BSE), which account for around 45 percent of the index's free-float market capitalization. The Nifty contains shares from the top 50 businesses listed on the National Stock Exchange (NSE), which account for around 62 percent of the index's free-float market capitalization.
- "The History of Bombay Stock Exchange". Archived from the original on 30 October 2021.
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- "CNX Nifty Index Methodology" (PDF). Nsdeindia.com. Retrieved 2 March 2022.
- ^ "NSE - National Stock Exchange of India Ltd". Nseindia.com.