What Is a Capital Market?

           A 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.

           The 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.

1. What Is Primary Market

           The primary market is also known as the new issues market. This market consists of issues of new securities i.e., shares, debentures i.e., bonds that have never been previously issued are offered. Both the new companies and the existing ones can raise capital on the issues market. The main purpose of the new issues market is to facilitate the transfer of funds from the willing investors to the entrepreneurs setting up new corporate enterprises or going in for expansion, diversification. growth or modernization. Besides helping corporate enterprises in securing their funds, the new issues market channelizes the savings of individuals and others into investments. 

          The new issue market includes long-term instruments such as equity shares, debentures, bonds, preference shares, or other innovating instruments.

2. What Is Secondary Market

      The secondary market is also known as the stock market represents the market where existing securities (shares and debentures) are trading. Stock exchange provides an organized mechanism for the purchase and sale of existing securities. Investors want liquidity for their investments. The securities which they hold should easily be sold when they need cash. Similarly, there are others who want to invest in new securities. There should be a place where securities may be purchased and sold. Stock exchanges provide such a place where securities of different companies can be issued by the corporate sector and other institutions.

       The secondary market helps in the transfer of ownership of securities. There are buyers and sellers for securities and stock exchanges help in completing these transactions. The investors have the option of selling the securities, as well as switching over of securities. In order to simplify trading, stock exchanges frame rules and regulations for buyers and sellers.

What Is Distinction Between Primary and Secondary Market?