Capital Market and Its Types

Capital market can be described as a place where capital suppliers and capital users trade capital. It's a place where different financial instruments can be traded.

There are two types capital markets:

• Primary Market
• Secondary Market

Capital market is where equity and debt instruments like preference shares, equity shares, debentures and bonds are traded. can be bought and sold.

Functions of the Capital Market

• It links savers and investors.
• Facilitates capital movement to be more profitable and productively used to increase the national income
• Economic growth is boosted
• Mobilization savings to finance long-term investment
• Facilitates the trading of securities
• Minimizing transaction and information costs
• Encourages ownership of productive assets from a wide range of people
• Quick valuations of financial instrument
• It offers protection against price or market threats through derivative trading
• Facilitates transaction settlement
• Improvements in capital allocation effectiveness
• Continuous availability of funds

Capital market is the best place to find financing for companies. The capital market offers investors a wide range of investment options that encourage capital creation.

Different types of Capital Market

Capital market classification

• Primary Market

  A primary market is a market for new issues. It only deals in new securities. This is where securities are traded for the first time. Capital formation for governments, institutions, and companies is the main purpose. Also known as Initial Public Offering (IPO). Let's now take a look at what primary market does.

  1. Origination. Origination refers to the process of examining, evaluating, and processing new proposals for projects in the primary market. It starts before an issue is in the market. Commercial bankers can help with this.
  2. Underwriting: To ensure the success of a new issue, there are underwriting firms. They are those who guarantee minimum subscription. If the issue is not sold, the underwriters will have to purchase it. However, if all issues have been subscribed, then they will not be liable.
  3. Distribution: Brokers and dealers are responsible for the distribution of jobs to investors.

• Secondary Market

  Secondary market is where securities are traded. This is also known as the stock exchange or stock market. Investors can buy and sell securities here. Let's now take a look at secondary market functions:

  1. Information about security's value is provided regularly
  2. Investors receive liquidity for their assets
  3. Trading is continuous and active
  4. Create a Market Place