Division in the capital market on the base of the nature of security traded, i.e. bond market or debt market and stock market or stock market.
Equity Market or Stock Market:
The marketplace in which shares are issued and traded either through exchanges or else over-the-counter markets. Also recognized as the stock market, it is one of the greatest vital areas of a market economy because it gives businesses access to capital and investors or stock holders a slice of ownership in a business with the potential to realize gains based on its future performance.
Equity or stock markets are the meeting point for sellers and buyers of stocks. The securities traded in the stock market can be either public stocks, which are listed on the privately traded stocks, or stock exchange. Often, private stocks are traded through brokers or dealers, which is the definition of an over-the-counter market.
Equity instruments can be traded in primary markets and secondary markets. In equity market, investors bid for stocks by offering a certain price, and sellers request for a specific price. When these prices match, a sale occurs. Often, there are several investors bidding on the same stock. When this happens, the first investor to place the offer is the first to get the stock. When a buyer will pay any price for the stock, he/she is buying at market value; also, when a seller will take any price for the stock, he/she is selling at market value.
Businesses sell stocks to get capital for growth of their businesses. When a business offers stocks on the market, it means the business is publicly traded, and each stock denotes a piece of ownership. These appeals to investors, and when a company does well, its investors are rewarded as the value of their stocks rise. The risk arises when a business is not doing well, and its stock value may decrease. Stocks can be bought and sold easily and quickly, and the activity surrounding a certain stock influences its value. For instance, when there is high demand to invest in the business, the price of the stock tends to increase, and when many investors want to sell their stocks, the value goes down.
Debt Market or Bond Market:
The bond market is the marketplace where debt instruments are traded. Debt instruments are assets that need a fixed payment to the holder, generally with interest. Examples of debt instruments include mortgages and bonds (government or corporate).
Environment in which the issuance and trading of debt securities arises. The bond market mostly includes corporate debt securities and government-issued securities, and facilitates the transfer of capital from savers to the issuers or organizations requiring capital for business expansions, ongoing operations and government projects.
Mostly trading in the bond market occurs over-the-counter, through planned electronic trading networks, and is composed of the primary market and the secondary market. Although the equity market often commands more media consideration, the debt market is actually many times larger and is vital to the ongoing operation of the public sector and private sector.
February 15, 2017