| June 29, 2023
Everything you need to know about NSE & BSE
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 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 –
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.
Difference between NSE and BSE
While BSE and NSE have the same basic working process, there are a few things in which they both differ. Here are some of the factors which you need to know while trading on one of these exchanges –
- If you are thinking of derivative trading, then trading on NSE can be beneficial as the share of derivatives trading of NSE is around 94% while that of BSE is just 6%.
- BSE has an all-in-all pre-open session that is from 9 am to 9.15 am before the actual trading session starts while at NSE, this pre-open session is divided amongst order entry, order matching and buffer period.
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.