Types of Stock Markets

Types of Stock Markets

Types of Stock Markets

The stock market is considered as the set of financial agents and institutions that are in charge of negotiating the different types of assets, such as obligations, shares, or funds, through the instruments constituted specifically for it. Its main objective is to capture business and personal savings, not only to speculate but also to obtain an extra financing point for companies. The stock market contributes to the movement of capital, thus facilitating monetary and financial stability. The use of defined stock markets favors the development of safer and more active monetary policies. Therefore, they can be considered as the places where agents, through intermediaries, exchange assets with each other, facilitating the freedom of citizens when it comes to selling or buying securities. 

They have a basic characteristic that other types of markets do not provide for financial assets, and that is that they can establish the price of securities, based on the law of supply and demand for them. What kinds of stock markets are there? In the stock market, it is necessary to differentiate between the primary market and the secondary market. primary market The primary market is about the market entry of new shares. They consist of shares from the company itself and are usually traded through auction, direct negotiation, or public tender. When it is indirectly, where financial intermediaries are involved, there are three ways to do it: Firm sale: the number of shares is specified for a certain amount, regardless of whether they are all sold or not. Stand-By Agreement: consists of the preliminary agreement between the issuing company and the intermediary. The latter makes sales in different batches and depending on the needs, the company closes more shareholding packages. It is usually a fairly frequent method when the management of these securities is carried out by a large number of financial intermediaries. Gray Market: It is done by using some parts of the market that companies do not use regularly. Although they are not considered prohibited or illegal, they receive this name due to the lack of knowledge of the real result as it is a little-explored market. Best Effort – Brokers will receive a commission based on sales by the company issuing these shares. The primary market is controlled by two institutions such as the CNMV and the DGTPF. The issuance of new shares implies that they have to pass through the filter of these two bodies to guarantee their proper functioning. Secondary market In the secondary market, securities that have already been issued and sold in the primary market are handled, which are handled simultaneously in real-time by sellers and buyers. To do this, they carry out their operations directly or through financial intermediaries. As expected, the different assets that are traded on the secondary market have previously passed through the primary market, in the process of issuance and placement, where the first purchase-sale operation took place. The secondary market can be considered as the setting in which individuals can carry out purchase-sale operations, which to a certain extent are the ones in charge of managing the financial fabric. By way of conclusion, stock markets can be defined as the space where a significant number of financial assets that are traded daily in the economy are measured in terms of the target price and the confidence that investors have in the companies.

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By Michael Caine

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