What is a stock market?

Stock market refers to the aggregation of buyers and sellers who trade in stocks. Stock exchange refers to the infrastructure that facilitates such buying and selling of shares. Stock exchange is the formal organisation that enables companies to list their shares and offer them for sale to the public.

Stock market is a broad term that refers to all the companies that list their shares for public investors to buy. It encompasses both primary and secondary markets and is a combination of OTC (over the counter) trading, electronic trading and stock exchanges. It is the platform where trading happens, enabling companies to raise capital from the public, for funding their expansion plans.

Stock market can be classified as bullish or bearish, depending upon the sentiment of the investors. A market where the investors are looking to buy shares in anticipation of future profits is a bull market. A bear market refers to a market where investors are trying to dispose of their holdings in anticipation of a fall in the market.

What is a stock exchange?

Stock exchanges are the entities that facilitate trading in shares by laying down the conditions for listing, providing services to individuals, traders and brokers and keeping track of price fluctuations and trading volumes. Thus, stock exchanges bring the buyers and sellers together at a common meeting point, which may be physical or virtual.

In India, the major stock exchanges are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Most of the share trading in the country happens through these two exchanges. BSE was the first stock exchange to be established in Asia and is one of the fastest exchanges in the world.

The National Stock Exchange was founded in 1992 and boasts of being the first demutualised electronic exchange in the country.

Capturing the differences

The differences between stock exchanges and stock markets are as follows:
  • Stock market is a common term for all kinds of stock trading, while stock exchange is the entity that facilitates such trading.
  • Stock market comprises OTC, electronic and stock exchange trading. It is an integral part of the stock market.
  • Stock market is a meeting place for buyers and sellers of stock whereas stock exchange is an entity that works with a profit motive.
Both stock markets and stock exchanges play a critical role in the economy. By creating liquidity, they influence economic activities.
 
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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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