If the check the share price of a company on BSE and NSE respectively, you can find there is a slight difference in the pricing of the same stock on both exchanges. But if the company is the same, why there is BSE & NSE price difference? Let’s find out!
What is BSE & NSE?
Before we discuss why there is a BSE & NSE Price Difference, let’s first discuss what are ‘BSE’ and ‘NSE’ are.
NSE and BSE are the two popular stock exchanges in India i.e. they are a market to buy and sell Indian publically listed companies.
- Bombay Stock Exchange (BSE): BSE is an Indian stock exchange located at Dalal Street, Mumbai, Maharashtra that was established in 1875 and is Asia’s oldest stock exchange. BSE has more than 5,500 companies are publicly listed on it.
- National Stock Exchange (NSE): The National Stock Exchange (NSE) is another leading stock exchange in India, located in Mumbai, Maharashtra, India. It was started to end the monopoly of the Bombay stock exchange in the Indian market. NSE has more than 1800 public Indian companies listed on it. NSE has more trading volume compared to BSE.
Now, these publically listed stocks can be bought and sold on either of the exchanges. It is also possible to buy some stock from one exchange and sell it on another.
Let’s take an Example
Maruti Suzuki is an Indian public company that is listed on both NSE and BSE. However, if you look into the share price of Maruti on both exchanges, there is a slight difference in the prices. For example, the last trading price (LTP) of Maruti Suzuki on 2nd August’22 was Rs 9,167 on BSE and Rs 9,173 on NSE.
Supply & Demand Factor
Before we understand the reason behind the BSE & NSE price difference, let’s take an example of our common vegetable markets around us.
If you want to buy a kg of tomato, though its regular price may be usually defined, but can vary depending on different market places that you visit. There can be a difference in the price depending on how much demand and supply is available for the tomato in that market at a specific time. If the supply is more, the prices may be a little lower in that market and vice-versa.
As the different markets places will have different sets of buyers and sellers, it will push the prices lower or higher in different markets and hence making a price difference.
A similar case applies while buying and selling shares on NSE and BSE.
Both these exchanges are a marketplace to buy and sell shares and offer different volumes and volatility. As the buyers and sellers will be bidding and asking for different rates on these exchanges, there will be a difference in the trading volume and hence resulting in the BSE & NSE Price Difference.
Generally, the price gap will not be much as if the price is higher on one exchange, the buyers will move to the second one, resulting in a reduction in the demand on the first exchange and vice-versa. This process will keep happening until the gap is narrowed down on both exchanges subsequently.
Why BSE & NSE Price Difference is Good?
The BSE & NSE price difference helps prevent an exchange to have a monopoly over the pricing of a stock. However, as the buyers and sellers differ on both these exchanges, hence results in different trading volumes and volatility, and price differences.
If the prices are trading higher on one exchange, the traders always have the option to move to the second exchange to make favorable trades, and hence no market will be able to enjoy a monopoly over pricing.
In simple words, Arbitrage trading can be defined as buying an asset in one market and selling it in another market in order to make profits based on the difference between the prices of the same asset in the different markets.
Traders who want to take advantage of the BSE & NSE price difference, might buy a stock at a lower price from one exchange and sell it on another exchange at a slightly higher price. However, the risk involved is higher as the price movement is very fast and hence the order placement should be done within seconds with accuracy.
As explained in this article, there will be a slight difference in the prices of the share on the two exchanges. However, you’ll rarely find scenarios where there is a vast BSE & NSE price difference where you can make big profits by arbitrage trading. Otherwise, everyone will buy from one market and sell in another market to make profits.
Nonetheless, having a slight BSE & NSE price difference is a little advantageous as it prevents an exchange to have a monopoly over the price of a stock.