There has been lot of confusion in between the terms ‘stock market’, ‘stock index’, and ‘stock exchange’. The confusion ends now.
Stock market is a place where stocks of a company (also others securities like derivatives and bonds) are traded. The stock market has two parts – primary market and secondary market.
- The primary market is where the companies sell stocks through IPO’s (Initial Public Offering). The secondary market is where the companies get listed on the exchanges after IPOs.
- The major difference between a primary and secondary market is that in the former when investors buy, the money goes to the company, as they are the ones selling but, in secondary market the stocks of companies which are listed on stock exchanges (the secondary market) after the IPO are bought and sold by the investors and traders. The company is neither involved nor gets the money in these trades.
Stock exchange is a place where all the securities (includes stock issued by listed companies, derivatives, and bonds) are listed and traded.
The stock exchanges as explained above can also be called secondary market.
There are many stock exchanges in India, however two stock exchanges in India stand out as they have the most companies listed and have almost 98% of trading volumes between them.
NSE (National Stock Exchange)
- Leading stock exchange of India
- Established in 1992
BSE (Bombay Stock Exchange)
- Oldest stock exchange in India and the first stock exchange in Asia.
- Established in 1875
A stock index is just a measurement of a stock exchange. It acts as an indicator of the market. Every exchange has its indexes to represent the overall exchange and also different sectors’ movement. Mathematically, it is a weighted average of some of the biggest and financially sound companies of the exchange.
- SENSEX (Sensitive Index) or BSE 30 for BSE (weighted average for the 30 biggest companies on BSE)
- NIFTY 50 for NSE (weighted average of 50 biggest companies of 12 different sectors listed in NSE)
I hope the difference between the terms is pretty clear now.
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