Explained: Basic Difference Between Stock Index, Stock Market & Stock Exchange

A person who has been investing the stock market for a long time may know the difference between a stock index, a stock market and a stock exchange. However, for a person who is new to investing, it may be difficult for him to understand the difference between these three terms. A lot of people often confuse these terms for one another.

Stock Index: An index is a basket of stocks that are bought and sold as a group. BSE and NSE both have a number of indexes, which consist of a combination of various stocks. If an individual buys shares according to the S&P BSE 100 index, he will own a small portion of each of the 100 companies that are in the index.

Stock Market: Stock market is a place where equity shares of a company are traded. Bonds and other types of equities are also traded and exchanged in the stock market. The stock market is divided into two sections - primary market and secondary market. The primary market is where the companies sell new issues through initial public offerings (IPO). The secondary market is where the companies gets listed on the exchanges after IPOs.

Stock Exchange: Stock exchange is a place where all the securities are listed. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. The most popular exchanges where securities are traded in huge volumes are Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). One can also know the live prices at which the securities are trading on BSE and NSE.

Some facts and information about the stock market:

• Approximately 6000 companies are listed on the BSE.
• Reliance Capital to set up an international commodity exchange (ICEX) in the Special Economic Zone within GIFT city.
• The first stock to be traded on BSE was that of the Dutch East India Company.
• The record low Sensex has ever touched is 113.28 points in December, 1979.
• The NSE has the second largest volumes in the derivatives market. It ranks second in Index Options, and third when it comes to the Stock Index Futures.