Difference between Stock Market and Stock Exchange

Stock Market

A stock market is a collection of stock exchanges where transactions related to the issuance, buying and selling of securities (stocks, bonds and other financial instruments) take place. These securities are issued by publicly held companies and are bought or sold by investors (both individuals and institutions). The main advantage of stock markets is that they allow for price discovery of shares and serve as a barometer for the overall economic sentiment in the nation. As the total number of participants in the stock market is huge, there is a greater chance of getting a fair price in the stock market as there is a greater amount of competition between the investors to purchase these securities.

The stock market is regulated and controlled by a governing body which oversees the transactions within the marketplace and makes every effort to ensure that there is no illegal trading. In India, that body is called the Securities and Exchange Board of India (SEBI). The stock market helps to bring together several market participants on a single platform and ensures fair market practices along with complete transparency in the transactions. The stock markets have transformed from paper-based share certificates to digital ones.

Stock Exchange

Stock Exchange is a place where stockbrokers and traders buy and sell securities based on specific rules and regulations. These exchanges also play an important role in providing facilities for the issuing of securities, the redemption of securities, and the payment of income and dividends. Various public companies and government bodies are also involved in raising capital through these exchanges. The securities that get traded on the various stock exchanges in the country include stocks issued by unit trusts, listed companies, pooled investment products, derivatives and bonds.

Investors, both individuals and corporations, from different parts of the country can put their money in this market with the purpose of increasing their returns both in the short and long term. These stock exchanges often perform the function of auction markets with the buyers and sellers, performing the transactions on the floor of the exchange via open outcry or by using electronic trading platforms. Some of the major stock exchange markets in India are the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and Indian International Exchange (INX). They are of help both for the companies (by allowing them to raise capital from the market) and investors (by allowing them to invest in profitable businesses and get high returns).

Difference between Stock Market and Stock Exchange

There are several points of difference between the stock market and the stock exchange. We will explore some of them in the table below:

Stock Market

Stock Exchange

Definition

A stock market is a collection of stock exchanges where the transactions for issuing, purchasing and selling of securities take place.

A stock exchange is a place where stockbrokers and traders come together to buy and sell securities.

Scope

The stock market has a wider scope since it consists of multiple stock exchanges

The stock exchange has a narrower scope since it is a part of the stock market.

Trade Volume

The volume of trade is generally larger for a stock market when compared to stock exchanges.

The volume of trade is generally smaller for a stock exchange when compared to the overall stock market.

Clearing House

The stock market does not work as a clearinghouse.

The stock exchange works as a clearinghouse.

Motive

The main purpose of a stock market is to act as a meeting place for various stock traders to conduct trading activities.

The stock exchanges operate under the motive of earning a profit from the trading activities of investors.

Example

Some of the examples of stock markets are the India Stock Market, European Stock Market, American Stock Market, Japanese Stock Market, etc.

Some of the examples of stock exchanges are National Stock Exchange, New York Stock Exchange, Shanghai Stock Exchange, Bombay Stock Exchange, etc.

Conclusion

Both the stock market and stock exchange have a very important role to play in the trading of securities across the country. They help companies get access to capital to run their businesses and provide their customers with superior quality products and services. It also allows investors from all around the country to put their money in profitable ventures and get significant returns on their capital.

Frequently Asked Questions

What are some of the main functions of the stock exchange?

Some of the major functions of the stock exchange are as follows:
  • It encourages investments and savings.
  • It helps to raise capital for the companies for their short term and long term financing needs.
  • It is involved in the valuation of securities.
  • It plays the role of an economic barometer.

What are some of the main functions of the Securities and Exchange Board of India?

Some of the major functions of the Securities and Exchange Board of India are as follows:

  • It is involved in promoting fair practices and prohibiting fraudulent activities related to securities trading in the stock market.
  • It is also responsible for checking any malpractices related to the price rigging of securities in the stock exchanges across the country.
  • It aims to prevent the practice of insider trading by barring any company from buying their stocks in the secondary market.

What was the name of the first computerised stock exchange in India?

The National Stock Exchange was the first computerised stock exchange in India.

Which market allows for the direct trading of securities like stocks, bonds and other financial instruments between the buyer and seller?

The primary markets permit the direct trading of securities between the buyer and seller.

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