Understanding the term “securities market” is essential for anyone looking to invest their money, as well as for those interested in the broader workings of the economy. Read ahead to get to know what this concept means!
What Is A Securities Market?
Simply put, a securities market is a general term used to describe a marketplace where securities are traded.
Such markets facilitate capital raising for companies and governments, while also providing investors with a means to earn returns through capital gains or income generated by the securities.
What You Need To Know About The Securities Market
The securities market includes both organized exchanges and over-the-counter markets, where brokers and dealers trade securities directly.
There are three primary types of securities:
- Equity securities. This category represents stocks and shares. When you purchase equity securities, you become a part-owner of the company.
- Debt securities. These financial instruments are also called fixed-income securities, or simply bonds. When you buy bonds, you are essentially lending money to the issuer, such as a corporation or government entity, in exchange for regular interest payments.
- Derivative securities. These financial contracts derive their value from underlying assets and enable investors to speculate on their value without having to actually own them. Some examples of derivatives include futures, options, and swaps.
The securities market definition is typically divided into two parts:
- Primary markets. The primary securities market is where companies issue new financial instruments and offer them to users for the first time through initial public offerings (IPOs). The issuers set the terms and price of the securities, and collect the proceeds from their sale without any intermediaries.
- Secondary markets. This is where the securities are offered for sale for at least the second time and where most trading activity takes place. The prices here are determined by supply and demand.
Overall, the securities market is a complex and dynamic concept in the global financial system, and while investing in it can be risky, it also has the potential to yield significant returns.
