in this video we're gonna look at the
very basics of the stock markets how
they are set up and where the money goes
when someone buys or sells a stock so
the term market is exactly what you may
think of it's a place where buyers and
sellers meet to exchange goods but
instead of buying cereal of fruit like
at your local market in the financial
markets people and institutions buy
stocks bonds funds currencies or
derivatives like options
broadly speaking these types of products
are called securities having this type
of market structure is useful as it
provides transparency and allows for
regulations on trading and allows for
the pricing of securities to be driven
by supply and demand ultimately leading
to an improved efficiency of the markets
now the capital markets can be broadly
defined as the stock and bond markets in
these markets government agencies public
companies and private companies can all
sell securities to try to raise capital
perhaps a municipality requires capital
to finance a piece of infrastructure
like a parking garage while this
municipality may elect to issue a
municipal bond to raise the necessary
capital a similar scenario may be true
for a public or private company that
wants to raise capital by issuing a bond
or perhaps ownership in their company
often called stock or equity now let's
imagine that a private company is going
to issue stock for the first time
well they do so on what is called the
primary market the primary market is
where securities are sold directly from
the issuer to investors in this example
the company is the issuer the primary
market is with securities like stocks
and bonds first become available this
initial sale is often called an initial
public offering or IPO for short
now generally institutions like
investment banks endowments mutual funds
hedge funds pension funds insurance
companies and so on are the only players
in the primary markets usually
individual investors don't get to
participate in the primary market the
secondary market on the other hand which
you may often hear called the stock
market the New York Stock Exchange is a
good example of a secondary market while
the secondary market has many individual
in
participating in it when stocks and
bonds are sold the issuer receives no
additional capital like they do in the
primary market in fact the key
distinction between the two markets is
that in the primary market the issue of
sells securities and they receive the
capital and in the secondary market
securities are bought and sold to and
from other investors so if an investor
buy shares of a company through the
secondary market they are buying those
shares from another investor
therefore it is ultimately supply and
demand for individual shares that drive
the price of any one security well if
there are more buyers relative to
sellers while the price of the security
will move higher and the opposite is
true if there are more sellers than
buyers the price would fall that is the
basics of how the stock market is set up
and the key differences between the
primary and the secondary markets if you
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