Stock Basics - Primary and Secondary Equity Markets

Capital is required to run any business. To run a small business owner’s or promoter’s capital is sufficient; but to carry out large and heavy businesses it may not be sufficient. There are two major sources of capital; borrowed capital and ownership capital.  Borrowed capital is raised by issuing bonds to individuals, corporates and financial institutes. We have already covered many topics on borrowed capital i.e. fixed income market, bonds etc.

Stocks, Shares and equity are interchangeably used words and all represent the ownership stake in a company.  Higher the number of shares of a company one hold higher is one’s ownership stake in the company’s assets and earnings.

How can one acquire partial ownership of a company?

There are two types of markets where one can buy stocks; Primary equity market and secondary equity market. Primary equity market is one in which companies offer shares to retail and institutional investors directly through initial public offer (IPO).

Once the shares are allotted through IPO they will be traded in secondary market through stock exchanges. Secondary equity market is highly dynamic and most of the times it’s most unpredictable. Different types of investors with different capacities, different time horizons and different strategies participate in secondary market trading making it most difficult to understand and predict.

 

 

 

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November 22, 2008 | Filed Under Banking, Stocks 

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