In this session, VRD Sir explains which stock exchange is better for retail traders for trading and why.
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As you know, BSE and NSE are the two biggest stock exchanges in India. There are lot more exchanges, but they are insignificant in terms of size.
First, let’s get some facts about these two exchanges
• BSE was established back in 1875! NSE is a relatively new exchange
• BSE is Asia’s oldest stock exchange; in case you’re wondering which is world’s oldest that would be Amsterdam Stock Exchange.
• BSE has over 5000 listed companies and NSE has about 2000
• BSE is a publicly listed company whereas NSE is still a privately held company. It’s coming with an IPO rather soon.
• These are their respective official websites
It’s important to remember that they both operate under SEBI’s guidelines. Ever since NSE was established, there has been a fierce battle between the two to attract more trading volume. After all, the more trading on the exchange, the more money they make.
Let’s see who is wining the battle for attracting traders like you and me.
Round 1: Liquidity
Liquidity is the mother’s milk for traders. After all, higher liquidity means tighter spreads, lower slippages and ease of entry and exit in the trades. Liquidity is especially important for intraday and swing trades.
So, let’s check turnover of the two exchanges.
Turnover refers to the value of the shares traded during a certain period. Measured in rupees, of course.
Turnover is a direct reflection of liquidity on that exchange.
Higher turnover means that more traders are trading on the exchange. This is the comparison of BSE and NSE’s turnover for past 3 years. The blue bars are for NSE and red one sfor BSE.
It should be obvious from this that NSE clearly has much higher turnover and BSE has not been able to catch up.
Putting simply, NSE has the lion’s share in the cash turnover. Meaning much more traders are buying and selling shares at NSE than BSE.
Let’s take a specific stock and see what it all means. We’ll go with ICICI Bank.
On 3rd July 2018, about 5 lakh shares were traded on BSE and about twice as much on NSE. It means that if you were trading shares of ICICI bank, you had better spreads, lower slippages and easier entry and exits in the trade.
So it should be obvious that NSE clearly wins the first round for liquidity in the cash market.
Now, let’s go to
Round 2: Trading in derivatives.
Liquidity is even more critical in derivatives. Without liquidity, a derivatives trader is a dead man. Just like in the cash segment, NSE is the most liquid exchange for derivatives– that is futures and options.
In fact, NSE is the undisputed leader. So much so that BSE doesn’t even come close. Look at that – 90% of the trading in derivatives happen on NSE. We’ll take an example ..let’s say you want to trade derivatives of India’s biggest private sector bank: HDFC Bank.
Here’s the volume on NSE..I know it’s kind of hard to read.
Now, let’s see BSE. Hm…nothing !
Yes, zero, not a single derivative traded on the BSE exchange. You have no other option but to trade at NSE. Also, when it comes to trading in indices, NIFTY and Bank Nifty are the most liquid scripts and they both trade on NSE.
It’s safe to say NSE won the second round too!
Round 3: we will compare the variety of stocks
As you know, BSE has over 5000 stocks and NSE has fewer than 2000. Why is that. May be because NSE is too stringent about its listing and reporting norms. BSE is a little too eager to get even the low-quality stocks.
What does it mean for us?
Well, for an intraday or swing trader, every stock that is tradable is listed on both the exchanges. So it doesn’t really matter.
However, it’s different for investors.
Investors, especially those interested in microcaps, have much more choices available on BSE than NSE.
From that stand point, BSE wins this round.
What about the cost of trading on the exchanges? Well, they are more or less similar and the difference is insignificant.
Overall, I think NSE clearly wins this battle because
It has better liquidity in the cash market
It is better for retail traders, especially day traders.
And because it is the only viable option when it comes to derivatives trading.
What does it all mean for you?
If you are an intraday trader, trade on NSE