uTrade Algos
The National Stock Exchange of India (NSE) serves as a key platform for securities trading, offering transparent and efficient markets. Established in 1992, the NSE facilitates trading in equities, derivatives, and debt securities, using advanced electronic systems for seamless transactions, fair price discovery, and effective risk management. Let us find out more about the NSE.
Table of Contents
Stock Trading Process
A stock trading process in today’s world is based on an online system where computer servers, the internet, and smartphones play an important role. Any investor can directly place a market order. An investor can directly place a trade order, and it is allotted a unique number for its trade. A trading computer or machine matches the order, and simultaneously, for both buyer and seller, it remains anonymous with the help of this computer system.
Two Stock Exchanges in India
In India, there are two stock exchanges where traders can trade using their stock broker platform.
- One is the National Stock Exchange of India Limited (NSE), the first dematerialised electronic exchange institution in the Indian Stock Market. The NSE was the first modern, transparent, and automated platform that was a medium for seamless electronic trading.
- The other is the Bombay Stock Exchange (BSE), one of India’s oldest and largest stock exchanges, tracing its roots back to 1875. It serves as a key platform for trading equities, derivatives, and debt securities, contributing significantly to India’s capital markets.
The stock exchange has integrated all the investors, brokers, and listed companies’ shares. So, investors under one roof support equity, derivatives, bonds, and debt instruments. All this trading process is done electronically, taking a small fraction of the time.
Working of the NSE
Trading in the stock market is done with the help of an electronic limit order book, where order matching takes place through a trading computer. The entire market does not have to be processed with specialists or market makers and is driven entirely by orders, meaning that investors have placed an order, and it has automatically been matched with a limited order. Thus, on the stock exchange, both the buyer and seller remain anonymous.
In addition to this, an order-driven market offers transparency in the system. An order for NSE stocks can be placed through any SEBI-registered stockbroking platform. In the NSE market, trading on equities is carried out on five working days, which include Saturday, Sunday, and even holidays that are declared by the stock exchange. The pre-opening market starts at 9:08 a.m. IST, order entry closes at 9:08 a.m. IST, the market closes at 3:30 p.m. IST, and the intraday position is squared off at 3:15 p.m. IST.
The National Stock Exchange’s flagship index is the Nifty 50, representing about 63% of the total market capitalisation listed on the NSE. This index also covers 12 sectors of the economy with 50 different stocks.
Benefits of Trading on the NSE
Trading on the NSE offers several benefits, including:
- Liquidity: The NSE is known for its high liquidity, allowing investors to buy and sell securities with ease and at competitive prices.
- Transparency: NSE operates on a transparent platform, providing real-time trading information, fair price discovery, and equal access to all market participants.
- Efficiency: With advanced electronic trading systems, NSE ensures efficient order execution, reduced transaction costs, and minimal manual intervention, enhancing overall trading efficiency.
- Diverse Investment Options: NSE offers a wide range of financial instruments, including equities, derivatives, ETFs, and debt securities, providing investors with diverse investment opportunities to suit their risk preferences and investment objectives.
- Regulatory Compliance: As a regulated exchange, NSE adheres to stringent regulatory standards and compliance requirements, ensuring investor protection, market integrity, and trust in the financial markets.
Function of NSE
- The NSE acts as the intermediary between traders and listed companies, with no involvement of market makers or specialists in the trading process.
- When an investor places a market order, it is assigned a unique number and processed by a computer, which matches orders based on price-time precedence or adds them to a queue for matching.
- Priority is given to best-price orders, with older orders at the same price receiving preference.
- The order-driven exchange market displays each buying and selling order in the system, ensuring clear transparency for investors, traders, and listed companies.
- Investors and traders can access online trading facilities through a share broker, allowing eligible individuals to open trading accounts and participate in the stock market.
Investment Segment in NSE
A Nifty 50 index was introduced in the benchmark index of the NSE in 1996. The CNX Nifty signifies the weighted average of the listed top 50 companies of various sectors. The Nifty 50 represents some of the essential companies that have an enormous market capitalisation, as it contributes to about 50% of stocks traded on the stock exchange. Some of the Nifty segments are as follows:
- Nifty 50 index
- Nifty Next 50 index
- Nifty 100 index
- Nifty Midcap 50 index
- Nifty Smallcap 250 index
- India Vix index
Conclusion
Established in 1992, the NSE operates as a dematerialised electronic exchange institution, facilitating transparent and automated trading in various financial instruments. Serving as a pivotal platform for securities trading, the NSE provides investors with efficient trading, fair price discovery, and robust risk management practices, thereby contributing to the growth and development of India’s capital markets.