BSE vs NSE: Which Exchange Should Beginners Choose?

Which is the better stock exchange BSE or NSE? Both exchanges are heavyweight stock exchanges in India, presenting many investment avenues. Still, a deeper understanding of their differences will enable a beginner to make an informed decision. 

BSE vs. NSE

BSE

Launched way back in 1875, the Bombay Stock Exchange stands as the oldest stock exchange in Asia, a name in itself is a legacy and innumerable listed companies. Its barometer index, SENSEX, tracks the top 30 companies publicly listed in the exchange and represent a variety of sectors in the Indian economy. Investments traded here range from equities, derivatives, debt instruments, and mutual funds to ETFs.

NSE

NSE is an abbreviation for National Stock Exchange and established in 1992 with the objective of fostering transparency and efficiency in stock trading in India. The NSE put into function the fully automated electronic trading system, enabling fast and smooth transactions. The index NIFTY 50, representing the top 50 stocks in various sectors, is calculated by the National Stock Exchange.

Key Differences

1. Trading Volume and Liquidity

The NSE has a higher number of purchasers and sellers compared to BSE. Hence it is preferred by traders who want easy entry and exit on buy/sell calls. Market orders on NSE enjoy higher liquidity, thereby minimizing or negating the impact costs. In other words, huge buy or sell orders can be executed in the market without much price change.

2. Stock Listings

Both exchanges make for hundreds of companies listed on it, but BSE boasts a greater count with over 5,000 companies against around 2,000 on NSE. For a beginner, this means plenty of discounted options on BSE, but due to liquidity and active trading, prefers NSE by all means for active traders.

3. Trading Mechanism and Speed

Before the BSE, NSE came with e-trading, and advanced technology made trading execution processing with high precision and speed. High-speed trading plays an important part in stock market transactions, thus the above makes NSE superior in terms of performance.

4. Benchmark Indices: Sensex versus Nifty

Both exchanges maintain their benchmark indices reflecting how the markets perform:

Sensex (BSE) based on 30 well-established and financially strong companies.

Nifty 50 (NSE) represents the top 50 stocks among all industries.

Both indices are indicators of market trends and economic health for long-term investors.

5. Derivatives Trading

The dominance of NSE lies in derivatives in India. A range of wide futures and options (F&O) contracts on this exchange have drawn traders who want to hedge their portfolios or speculate on price movements. Derivative transactions are available from BSE, but those volumes are drastically decreased compared to those done by the NSE, forcing all derivative traders to prefer the latter.

What is India VIX?

Market volatility is, for traders, where India VIX fits in. India, or the India Volatility Index, is a gauge of the expected 30 days of likely market volatility. Constructed from the NIFTY 50 index options, it's used extensively by traders as a measure of market sentiment.

The higher India VIX value indicates the market is likely to have increased volatility, resulting in wider price movements and thus more opportunity and risk for traders. Conversely, a lower India VIX indicates a more stable market environment. While beginners would love to avoid their fun, high-risk trades, they would do well to keep tabs with the India VIX before entering the market.

Which exchange is better suited to Beginners?

Picking one exchange over the other, BSE, for NSE, will depend highly on the investor's goals and trading strategy. Here are recommendations for beginners:

Choose NSE if:

You want to do intraday trading or derivatives trading.

You want stocks having more liquidity.

You prefer a more technologically advanced trading system.

Choose BSE if:

You want long-term investments with a broader choice of stocks.

You want small-cap or mid-cap stocks.

You like mutual funds and debt instruments trading.

Conclusion

Both BSE and NSE have their incomparable importances that completely make the ecosystem of India's financial markets. Though, the choice of beginners would be in favor of NSE owing to liquidity, technology, and of all dominance in derivatives trading.