Types Of Share Markets
*There are two types of share markets in the country:*
*Primary Share Market:
This is the market where companies or businesses register themselves. Companies enter the primary share market to raise funds by offering their stocks. When a company registers itself in the primary share market and offers to sell its shares for the first time, it is known as Initial Public Offering (IPO). Here, you must understand that shares are a physical representation of a small value of the company, and owning the shares means that you are a part-owner of the company.
*Secondary Share Market:
The actual trading of a company's shares occurs in the secondary share market. After a d company's share is listed on a stock exchange, investors can engage in trading, i.e. the sale or purchase, on prices that are governed by market movements. You can trade in shares in the secondary share market only through a broker. In the present digital age, you can easily open a Demat Account and a Trading Account, following which you are allowed to trade in stock markets via broking platforms.
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*Types of securities in the stock market?
Let's first define security. Security relates to a financial instrument or financial asset that can be traded in the open market, e.g., a stock, bond, options contract, or shares of a mutual fund, etc. All the examples mentioned belong to a particular class or type of security.
1. Debt Securities.
It represents money that is borrowed and must be repaid with terms outlining the amount of the borrowed funds, interest rate, and maturity date. In other words, debt securities are debt instruments, such as bonds (eg, a government or municipal bond) or a certificate of deposit (CD) that can be traded between parties. Here a fixed rate of interest is being paid.
2. Equity Securities-
It represents ownership interest held by shareholders in a company. In other words, it is an investment in an organization's equity stock to become a shareholder of the organization. The difference between holders of equity securities and holders of debt securities is that the former is not entitled to a regular payment, but they can profit from capital gains by selling the stocks. Another difference is that equity securities provide ownership rights to the holder so that he becomes one of the owners of the company, owning a stake proportionate to the number of acquired shares.
3. Derivative Securities-
These are financial instruments whose value depends on basic variables. The variables can be assets, such as stocks, bonds, currencies, interest rates, market indices, and goods. The main purpose of using derivatives is to consider and minimize risk. There are three main types of derivative securities: Futures, forwards and options.
4. Hybrid Security-
As the name suggests, it is a type of security that combines characteristics of both debt and equity securities. Many banks and organizations turn to hybrid securities to borrow money from investors. Similar to bonds, they typically promise to pay a higher interest at a fixed or floating rate until a certain time in the future. Unlike a bond, the number and timing of interest payments are not guaranteed. They can even be converted into shares, or an Investment can be terminated at any time.
