Types of Capital Market

First category is Primary Market

When you think of investing in the companies who are issuing their securities for the first time,then you are thinking about investing in Primary Market.This first time issue of bonds or stocks by companies,government or institution is called an IPO(Initial Public Offerings). This process of selling new securities to the investors is called underwriting .

Now,let us give you a deep insight on primary market.

Main Features of Primary Market

Now we’ll tell you about the main features of Primary Market.

1)This is the type of market where securities are issued for the first time, so it is also called New Issue Market.

2) The securities in Primary Market are issued directly to the investors.

3)The money is directly received by the company and in turn it issues the new securities certificate to the investors.

4) Primary issues are mainly done by those companies who are setting up the new business,expanding or upgrading the existing business.

5) This market facilitates the capital formation in the economy.

6) Borrowers in the primary market raise capital by converting private capital into public capital, which is also known as ‘going public’ .

Now understand it through an Example

You all must be knowing about Facebook, a social media website. It’s IPO in 2012 was largest by an online company and a company in technology sector. 460 million shares were sold and turnover exceeded to 100%. The stock was initially priced at 38$ and it closed at 38.23$. This was a total success for the comp

The Other category is Secondary Market

Secondary Market is a market in which previously issued financial instruments such as shares,bonds,futures and options are traded. This market is also called aftermarket.

Securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid .The only way to create this liquidity was for investors and speculators to meet at a fixed place regularly; this is how stock exchanges originated.

Primary market vs Secondary Market

It is important to understand the difference between the secondary market and the primary market. When a company issues stock or bonds for the first time and sells those securities directly to investors, that transaction occurs on the primary market. Some of the most common and well-publicized primary market transactions are IPOs, or initial public offerings. During an IPO, a primary market transaction occurs between the purchasing investor and the investment bank underwriting the IPO. Any proceeds from the sale of shares of stock on the primary market go to the company that issued the stock, after accounting for the bank's administrative fees.

If these initial investors later decide to sell their stake in the company, they can do so on the secondary market. Any transactions on the secondary market occur between investors, and the proceeds of each sale go to the selling investor, not to the company that issued the stock or to the underwriting bank.