Stock exchanges are the backbone of the stock market. The stock market and the index of major stock exchanges is also seen as the economic barometer of a country. Currently, in India, there are seven active stock exchanges. Of these seven, NSE and BSE are the leading ones. Thus you as an investor/trader who is investing your precious time and money in the stock market to earn profits should know which stock exchange to choose, to maximize your profits. This article will certainly help you in a direction to understand, BSE or NSE which is better.
Indian financial markets are regulated by Security and Exchange Board of India (SEBI), which is an autonomous body. SEBI, through its 20 departments enforces its bye-laws to the financial intermediaries and other entities of the Indian stock market. This keeps the stock market healthy and transparent.
Stock exchanges are also one of the entities of the Indian stock market and regulated by SEBI.
Currently there are 6 active stock exchanges in India, viz.
- BSE Ltd.
- Calcutta Stock Exchange Ltd.
- India International Exchange (India INX)
- Metropolitan Stock Exchange of India Ltd.
- National Stock Exchange of India Ltd.
- NSE IFSC Ltd.
Of these active exchanges, NSE and BSE are the two leading stock exchanges. Both stock exchanges are different in respect of their management and growth. As an investor, it becomes important to find which one is more profitable.
Before starting the actual comparison in the context of profitability, it is important to have a look at BSE and NSE separately.
Bombay Stock Exchange (BSE)
BSE is the oldest stock exchange in Asia, started in 1875 by a group of brokers in Bombay (now Mumbai). It used to have a floor-trading concept where brokers shout in a ring for the prices. This itself along with other aspects were quite opaque to the investors. Brokers themselves never wanted to provide transparency to the stock market thus keep on having profited from investors without doing anything.
National Stock Exchange (NSE)
Indian stock market saw a huge failure after Harshad Mehta scam emerged. Till this time BSE was the only major stock exchange in India. After this scam, NSE was introduced as a choice for the investors and as a competitor to the BSE. NSE was also a demutualized organization as opposed to the BSE which was managed by brokers only.
NSE was established in 1992, recognized by SEBI in 1993 and started operating in 1994. NSE started its operations with the electronic screen. Means there was no chaos of floor-trading (shouting for prices) like in BSE. Later internet was adopted and investors started investing in the stock market from their home. A screen based exchange and internet made NSE hugely popular among investors.
BSE also realized the huge increase of NSE users. Later it also adopted the technology, bidding farewell to floor-trading.
NSE or BSE which is better
Both NSE and BSE function under the strict supervision of SEBI. They both compete with each other and try to be the better, which in turn works well for the investors.
Let’s understand the criteria to choose your preferred exchange for trades.
- Transaction charge
- Trade type
You must be aware that you pay various charges in the stock market to trade and invest. If not, then you can read different charges in the stock market for your reference. One of these charges is transaction charge which is levied by the stock exchange. Stock exchanges are privately run organizations thus profit making is their main objective. Transaction charge is the main earning of any stock exchange.
Both BSE and NSE have different methods of levying transaction charge from its users. BSE and NSE transaction charge is also different for different brokers because of clearing charges and other variables. Thus you need to see which exchange will charge you less for your total turnover trade.
To simplify, I am giving an example of NSE, BSE transaction charge on zerodha.
NSE charges 0.00325% on turnover and BSE charges ₹ 1.5 on both buy and sell trade.
Thus every trade, even of turnover of ₹ 1 is charged ₹ 3 as transaction charge on BSE and 0.00325% on NSE. Which means BSE is good for big turnover trades while NSE is profitable for lesser turnover trades.
As per calculations, a turnover up to ₹ 92,400 should be executed on NSE as it attracts lesser or same charges as compared to BSE. Trades, whose turnover is beyond ₹ 92,400 should be executed on BSE for lesser charges.
If trade turnover is lesser than ₹ 92,400 use NSE
If trade turnover is greater than ₹ 92,400 use BSE
This calculation is done for zerodha brokerage only as its NSE, BSE charges are available publicly.
Liquidity means when you want to sell your stocks there should be enough buyers in the market. You should not get stucked because there is no buyer. This applies both to intraday and delivery based trades.
BSE is considered to have largest numbers of companies listed in the world which is approximately around 5000 and NSE has only approx 1500 companies listed. However, its interesting to see that NSE stocks are more active than BSE thus making NSE a better choice in terms of liquidity.
Both delivery based and intraday trades have same charges on BSE and NSE. Thus you only need to verify the DP charges from your own broker in case you are doing a delivery based trade.
Now that you have found a way to choose your preferred exchange, lets’ get clarity on some more points.
- Price of a scrip listed on both BSE and NSE has some difference.
- In delivery based trading, you can buy a scrip on NSE and sell it on BSE and vice-versa.
- You can not sell on other exchange in intra-day trades.
- The scrip you are interested to trade/invest in should be listed on your chosen exchange.
- Your broker should be a member of your chosen exchange.
Both BSE and NSE are the leading stock exchanges in India. As an investor it is important to find out which exchange is more profitable for a certain trade. This information may increase profits because A penny saved is a penny earned.
NSE stocks are more liquid than the BSE stocks thus providing more opportunity to convert stocks into money. On the other hand this article also illustrates that for higher turnover trades, BSE is a better choice because of lesser transaction charges.