Capital market is a place where buyers and sellers indulge in trade (buying/selling) of financial securities like bonds, stocks, etc. The trading is undertaken by participants such as individuals and institutions.
Capital market trades mostly in long-term securities. The magnitude of a nation’s capital markets is directly interconnected to the size of its economy which means that ripples in one corner can cause major waves somewhere else.
Types of Capital Market
Capital market consists of two types i.e. Primary and Secondary.
Primary market is the market for new shares or securities. A primary market is one in which a company issues new securities in exchange for cash from an investor (buyer).It deals with trade of new issues of stocks and other securities sold to the investors.
Secondary market deals with the exchange of prevailing or previously-issued securities among investors. Once new securities have been sold in the primary market, an efficient manner must exist for their resale. Secondary markets give investors the means to resell/ trade existing securities.Another important division in the capital market is made on the basis of the nature of security sold or bought, i.e. stock market and bond market.