Bond Market vs. Stock Market: What's the Difference?

It is time to invest your money, so where exactly are you going to do that? After you have gotten your money together and decided on an investment strategy, it is time to buy some securities. First off, let's explain that the term securities is a general term used to describe tradable investment assets that have some monetary value such as stocks, bonds, and options. Investors build a portfolio of diversified holdings from these securities.

Stocks and bonds are two of the most traded items, and each of these sells on their platforms or markets. Stocks are shares, known as equity, in a publically traded company. Bonds are a fixed-income loan the investor makes to a government or corporate entity.

The bond market is where investors go to trade (buy and sell) debt securities, prominently bonds, which may be issued by corporations or municipalities. It is also known as the debt market or the credit market. Securities sold on the bond market are all various forms of debt. By buying a bond, credit, or debt security, you are lending money for a set period and charging interest, much like a bank.

The bond market does not have a centralized trading place. Bonds mainly sell over the counter (OTC). As such, individual investors do not typically participate in the bond market. Those who do, include large institutional investors like pension funds foundations, and endowments, as well as investment banks, hedge funds, and asset management firms. Individual investors who wish to invest in bonds do so through a bond fund managed by an asset manager.

A stock market is a place where investors go to trade (buy and sell) equity securities such as common stocks and derivatives including options and futures. Stocks are traded on stock exchanges. Buying equity securities, or stocks, means you are buying a, generally, very small ownership stake in a company. While bondholders lend money with interest, equity holders purchase small stakes in companies on the belief that the company performs well and the value of the shares they bought will increase.

The Prominent U.S. Stock Exchanges

In the United States, the prominent stock exchanges include 

• Nasdaq is a global, electronic exchange listing the securities of smaller capitalization companies from different industries and from around the world. Technology and financial stock make up the bulk of the index, but it also includes listings of consumer goods and services, health care and utilities. This exchange also forms the basis of the U.S. technology sector benchmark index.
• New York Stock Exchange (NYSE) 
• American Stock Exchange (AMEX), which was acquired by the NYSE Euronext and became the NYSE Amex Equities in 2009. 

These markets are regulated by the U.S. Securities and Exchange Commission (SEC).

One major difference between the bond and stock markets is that the stock market has central places or exchanges where stocks are bought and sold. The other key difference between the stock and bond market is the risk involved in investing in each.

Investing in certain sectors of the bond market, such as U.S. Treasury securities, is said to be less risky than investing in stock markets, which are prone to greater volatility.

• The bond market is where investors go to trade (buy and sell) debt securities.
• A stock market is a place where investors go to trade (buy and sell) equity securities.
• A stock market has central locations or exchanges where stocks are bought and sold.
• The bond market does not have a central trading place; bonds are sold mainly over the counter (OTC).
• In the United States, the prominent stock exchanges include Nasdaq and the New York Stock Exchange (NYSE).