Learning how to trade and invest requires an understanding of the functioning of the Indian capital market.
Through the transfer of money from savers to borrowers, the capital market plays a crucial role in the economy, promoting investment and economic expansion. Comprehending its operation is crucial to understanding the allocation of resources, the determination of securities prices, and the maintenance of financial stability.
This blog explores the inner workings of the capital market, including its main players, procedures, and effects on the overall economy.
The foremost important question that arises is: What exactly is the Capital Market ?
The capital market is a venue for the purchase and sale of financial instruments, such as stocks, bonds, etc. Participants in the trade include both individuals and institutions. Most capital market transactions include long-term securities.
The money is pooled for a longer duration than a year in capital markets.
The modern capital market system is well-equipped with an electronically based trading system that offers an expanding platform and brings together traders from different zones and countries, in contrast to what capital markets were in the past.
Now that you have understood what a Capital Market is, let’s look into the Securities market.
The security market is a segment of the broader financial market wherein securities are exchanged between economic entities based on supply and demand.
The primary and secondary markets are the two interconnected and integral parts of the securities market.
- The primary market, where new securities are issued, and
- the secondary market, where existing securities are traded, are both included in the capital market.
Investors can trade securities in the secondary market once they are listed on the stock exchange. Trading on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Calcutta Stock Exchange (CSE), and so forth are a few examples.
It gives investors the chance to diversify their portfolios and earn returns while facilitating businesses’ ability to raise finance for expansion and innovation. This is accomplished by effectively matching supply and demand for capital.
2) The Secondary Market is divided into the following categories:
- Spot market: Securities are delivered instantly and paid for without any delay.
- Futures Market: securities are purchased and sold for a specific future date.
Another types of market is the Money Market :
Short-term funding is available to lenders and borrowers for a maximum of one year. Due to their great liquidity, money markets have a little default risk.
To sum up,
As a result, capital markets start the complete savings mobilisation process and direct those savings to those sources through investors. The movement of money via the aforementioned marketplaces signifies the expansion of the economy.
