Defining Capital Market

What is Capital Market?

By: Syed Hamza Shahnawaz

Class: 7

St. Patrick High School Karachi

The capital market is composed of the supplier (who invests money) and the user of the fund (who lends money). Suppliers include life insurance companies, charitable foundations, institutional investors, and non-financial companies. Which generates cash from the supplier’s investment. The users of the fund include houses and vehicle purchasers, businesses, and governments financing infrastructure investment. The most common capital markets are known as the Stock Market and the Bond Market.

Types of Capital Market:

Capital Market is composed of two types of market:

Primary Market:

Primary Markets are used by several investors who buy securities directly from the issuing companies. These securities are described as Initial Public Offerings (IPOs). When issuing companies go public, it sells its stocks and bonds to institutional investors such as hedge funds and mutual funds.

Secondary Market:

The Secondary Market includes places run by the regulatory body, for example, Securities and Exchange Commission (SEC), where the existing or already issued securities are traded between the investors. Examples of secondary markets are the New York Stock Exchange (NYSE) and NASDAQ.

Below are the main types of Capital market:

Stock Market:

The stock market consists of collections of markets and exchanges, where activities of buying, selling and issuing shares of publicly held companies take place. These financial activities are conducted by OTC (over the counter) marketplaces that operate under a defined set of regulations.

Bond Market:

The bond market describes a marketplace where the investors buy debt securities. These are brought to market by publicly-traded corporations. The companies issue bonds to increase the money to maintain operations and open new locations. Bonds are issued in the primary market, which introduces new debt. Or in the secondary market, in which investors purchase debt through brokers or other third parties.