The term market is widely used in our day to day life. A market is defined as a place, physical or virtual, where there are buyers and sellers who have the intent of buying and selling. Capital market is then a place where buyers and seller trade. The important question here is what could be object of transactions, assets like gold, stock, bond, etc are all the object of the transactions in the capital market. Basically Capital market is a place where people come to buy and sell.

What really makes capital markets so attractive is the probability of making profit. Let me dive further into capital market and define few basics terms such as types of asset classes, types of market places and primary and secondary market.

Types of Asset classes

1. Stocks: It can also be called as shares and is defined as a part of the bigger portion of a company, a part ownership in the bigger pie.
2. Bonds: It is also called as debt. Bonds are basically loans in which interest can be earned
3. Gold: It is a precious metal.
4. Commodities: These are oil, crops etc that are traded in the market.
5. Land: The definition of land is very self explanatory. It is any piece on earth that is not covered with water. Land could be be further divided into agriculture land and non agriculture land.

Types of Market Places

1. Over the counter(OTC) Market place: OTC is market place where anyone can trade over the counter, meaning there is no middleman, where trading takes places directly between buyers and the sellers. Because there is no middleman there is a high counter-party risk which means that the other party may not honour the terms of transaction.
2. Regulated market: Stock exchange is an example of regulated market. It is a market which is centralised and governed by rules and regulations. The benefits of a regulated market such as the stock exchange are the elimination of counter-party risk and better transparency.

Primary market

Primary market is defined as a place where a security is issued and sold for the first time in the market to the buyers. It is a place for companies who want to raise capital by issuing shares of their company at a price determined by the merchant banker. The merchant banker is often the underwriter of this transactions and helps in the complete process of making the deal happen. This process is also called as an IPO(Initial Public offering).

Secondary Market

After the company issues their shares to the public in the primary market, people now can trade this share among other investors in the secondary market. Thus secondary market is place where investors can trade with each other. In secondary market the price is determined by the supply and demand factors in the short term.

I hope this article was helpful. Please feel free to share your feedback and let me know if anything was missing. Until next time, Peace.