You have been hearing about the stock market and the stock exchange for years. But now you are old enough (no point denying it!) to know what these two terms really mean, and what the discernible difference between the two is. After all, they can have a lasting impact on your investing patterns and your overall financial portfolio.
Before we can begin, let’s clarify what a stock is.
A stock is a form of investment in a company. An organization might issue a share of stocks in order to raise financial capital or propel growth. On the other hand, an investor would purchase a company’s stock to gain returns on his investment, as the company grows and earns more and more revenue.
You may think of your stocks as units that denote how much stake you have in any given organization.
Now that you know what a stock is, let’s dive into two important questions –
What is the Stock Market?
The Stock Market refers to the aggregation of buyers and sellers who trade in or purchase stocks. It provides an infrastructure for you to be able to purchase a share of stocks in a company of your choosing. Without the Stock Market, it would not be possible to trade in stocks.
The Stock Market is a broader term, referring to all the companies that list their shares as a public offering, enabling investors to buy them. The Stock Market includes over-the-counter trading, electronic trading, and stock exchanges.
What is the Stock Exchange?
The Stock Exchange refers to the entities that facilitate your trade in shares. These are the formal organizations where companies can list their shares and sell them to the public. The Stock Exchange is more of a platform, where the buyers and sellers can meet and conduct business. Without the Stock Exchange, there wouldn’t be a place where you could direct your investment and spending.
The two main Stock Exchanges in India are the National Stock Exchange i.e., NSE, and the Bombay Stock Exchange i.e., BSE. (Quick fact: the BSE is the oldest stock exchange in Asia!)
The New York Stock Exchange (NYSE, USA), the National Association of Securities Dealers Automated Quotations (NASDAQ, USA), and the Shanghai Stock Exchange (China), are three of the largest Stock Exchanges in the world.
If you think of the Stock Market as a shopping mall, and the commodities being sold in the mall as the stocks, then the Stock Exchanges would be the billing counters in each of the mall stores. The mall itself is where all the brands you want to buy are selling their products, but their billing counters are the only place where you can actually purchase, return, or exchange their products.
Difference Between a Stock Market and a Stock Exchange
Now that we’ve cleared that up and taken you on a virtual mall tour (come back now, there’s more to learn!), we can dive into some of the main differences between a Stock Market and a Stock Exchange, on the basis of four main criteria –
On the Basis of Scope – The Stock Market is a broader umbrella. It has a larger scope, as it comprises a number of Stock Exchanges, and is reflective of a more national or global marketplace. A Stock Exchange, on the other hand, has a narrower scope, as it is typically reflective of a financial region.
On the Basis of Motive – A Stock Market serves the purpose of being a meeting place for various investors (read: stock traders), where they can conduct their buying and selling of stock. A Stock Exchange, however, operates with the motive of creating profits from the activities carried out by stock traders and through their investing habits.
On the basis of Systems – Without a Stock Market, traders of stock would not exist. Whereas, without a Stock Exchange, organizations would lack a formal system that allows them to sell their shares of stock.
On the Basis of Trade Volume – Since the Stock Market is an aggregator of sorts, the volume of trade is large. The Stock Exchange, though it still has a large amount of buying and selling, is only a small part of the overall trading that is taking place within the Stock Market as a whole.
The bottom line is this – trading in stocks can be a very important (and exciting) part of your investment portfolio. Owning stocks of various companies across industries helps mitigate your risk while still maximizing the returns on your savings and investment. It is important to remember that as with all investments, trying to grow your wealth through the Stock Market and Stock Exchange requires proper research, and making decisions that align with your personal financial goals.