Types of Capital Market

There are plenty of meanings for the word market, but mostly it represents both primary and secondary markets.

There are plenty of meanings for the word market, but mostly it represents both primary and secondary markets. As these, both are district terms, in the primary market the securities are initiated while the secondary market refers to trade securities among investors. Understanding the nature of the primary and secondary markets helps you to know the bonds, stocks, and other securities well. Without these appropriate markets, it would be difficult to navigate the securities.

In this blog, you will go through the different types of capital markets. So let’s begin:

The primary market

The securities are created in the primary market, the new stocks and bonds float to the public for the very first time in this market. IPO is the main example of a primary market, the investors get the opportunity to trade securities from the bank that has the underwriting for the specific stocks. The process of IPO takes place when a private company issues its stocks for the first time to a public company.

Let’s take an example, the company ABC wants to determine the financial details of its IPO so it hires almost five underwriting firms. The underwriters issue its stock for the first time at the price of $15 so investors need to buy at this price from the issuing company. This is the phase when a company gets capital from the public by selling its stock on the primary market. There are different types of primary offerings:

In the primary market, companies raise their equity through offering the securities, after the issuance of stocks the securities enter the secondary market automatically. Other types of primary market offerings include preferential allotment and private placement. In the private placement, companies are allowed to sell their securities directly to large investors like banks and hedge funds without making the shares publicly available. While the preferential allotment is associated with the shares to choose the investors at the particular price that are not available to the general public.

Keep in mind, the main thing about the primary market is that the securities are purchased directly from the issuer. In the same way, governments and businesses that want to have debt capital can select to issue new long-term and short-term bonds in the primary market. The interest rates on these securities may be lower or higher than the existing interest rate in the secondary market.

The secondary market

The secondary market is usually referred to as the stock market. It includes Nasdaq, New York stock exchange, and all the exchange platforms throughout the globe. The main element of the secondary market is investors are directly involved with each other in trade. There is no need for the issuance company to sell and buy the securities in the secondary market. It can be categories in further two specialized categories:

Auction and dealer market, in the auction market the companies that want to trade the securities announce their willing price that is referred to as ask and bid price. The idea is to declare the price of specific security publicly. While in the dealer market, there is no need for parties to get involved in the process as participants are involved in the process through electronic platforms. The best price is indicated through the theory of competition between the dealers in this type of market. If you want more information regarding such subjects then get connected with the rich arsenal of objectual systems limited for blogs.

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