Getting to Know Stock Exchanges: Essential Information for New Investors

A stock exchange is like a marketplace where people buy and sell financial items such as stocks, commodities, and other instruments. The main job of an exchange is to make sure trading is fair and prices are shared efficiently.

Exchanges provide a platform for companies, governments, and other organizations to sell their stocks to the public. They aren't just physical locations; they also create and enforce rules for trading and sharing information. By centralizing the communication of buy and sell prices, exchanges help buyers and sellers find each other more easily.

In India, the two main stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The Securities Exchange Board of India (SEBI) regulates both exchanges to ensure they operate smoothly and fairly. The two major market indexes in India are Sensex and Nifty, which track the performance of the top companies listed on these exchanges.

Bombay Stock Exchange (BSE)

• Location: Dalal Street, Mumbai

• History: Established in 1875, it's the oldest stock exchange in Asia, initially known as The Native Share & Stock Brokers Association.

• Sensex: Introduced in 1986, this index tracks the top 30 companies across more than 10 sectors.

• Other Indices: Include BSE 100, BSE 200, BSE 500, BSE MIDCAP, BSE SMLCAP, BSE PSU, BSE Auto, BSE Pharma, BSE FMCG, and BSE Metal.

• Market Cap: As of October 19, 2021, BSE's market cap was over Rs 118.80 crore, ranking it among the top 10 global exchanges.

• Products: Equities, equity derivatives, commodities, and currency derivatives.
  

National Stock Exchange (NSE)

• History: Established in 1992, with operations starting in 1994.

• NIFTY 50 Index: Launched in 1995-96, it lists the top 50 companies on the NSE.

• Other Indices: Include Nifty Next50, Nifty500, Nifty Midcap150, Nifty Smallcap250, and Nifty MidSmallcap 400.

• Products: Equities, equity derivatives, commodities, and currency derivatives.

• IPO: NSE plans to launch its own IPO soon.
  

Pros and Cons of Stock Exchanges

Pros:

• Regulated and Transparent: Exchanges are regulated, ensuring transparency in pricing and transactions.

• Guaranteed Trades: Every trade is settled and guaranteed through a clearing house.

• Fair Execution: All participants are treated equally, and trades are executed at the best available market prices.
  

Cons:

• Algorithmic Trading: The rise of algorithmic and high-frequency trading (HFT) can create false liquidity and opportunities for front-running.

• Market Crashes: Unpredictable algorithmic trading patterns have been linked to market crashes.
  

By understanding these basics, even those new to finance can grasp how stock exchanges work and their role in the economy.

Rathi

Marketing intern