An Overview Of Capital Market

The Capital market broadly refers to the market for trading the Financial Instruments. Commonly traded financial instruments are stock, bonds, debentures, treasuries, derivatives etc. The capital market provides an opportunity for the companies/businessmen to raise fund for their business by way of issuing initial public offers, bonds, debentures etc.  At the same time, it also provides an opportunity for the individuals to channelize their savings by way of investing in financial instruments resulting in high return. Instruments in the capital market normally mature for a period above one year.

In the capital market, the funds are pooled with help of financial instruments and are made available to public, business and government.  Commonly, financial institutions like ICICI, LIC, HDFC etc play the role of lender whereas the corporate/businessmen play the role of borrowers in this market.

TYPES

Capital markets are categorized into two types:

  1. Primary Market: This includes the sale of new securities and financial instruments. The issuer sells the financial instruments (mainly the securities) in the primary market to raise funds for investment or discharge of any obligations. It is through the primary market funds are moved from investors to entrepreneurs. Primary market paves way for the secondary market.
  2. 2. Secondary Market: Secondary market mainly comprises of stock exchanges that provide the platform for purchase and trade of securities. This market enables investors to adjust their financial instruments in response to changes in market trends. It also ensures free marketability, sale and price negotiation. Even the cryptocurrency markets would be categorized under this market despite the fact that they trade differently. There are trading Robots with unique features to track and analyze the markets conditions thereby enabling the investors to react to the volatility. Want to know more about trading robots? Here is the full review of top crypto robots used in the market for the trading. The secondary market has further components.
  3. a) Spot market: refers to the market where the securities such as shares, bonds, debentures are traded for immediate delivery and payment.
  4. b) Futures market: refers to the market where the securities are traded for future delivery and payment.
  5. c) Options market: refers to the market where the securities are traded for conditional future delivery. A put option allows the seller to sell the security to the writer of the option at a pre-determined price before the set date whereas call option allows the buyer to purchase the security from the writer of the option at a pre-determined price before the set date.

Considering the opportunities and scope of operation, the capital market plays a crucial role in promoting and sustaining the economic growth of the country.