Capital market is divided into two types � Primary Market Primary market is also known as primary capital market or new issue market. In primary investors buy securities directly from the company which is issuing the security. When company sell new stocks or bonds for the first time it is done in the primary market. In the primary market the transaction is conducted between issuer and buyer. Most of the time it is done by IPO (initial public offering). By IPO companies sell their stocks to public for the first time. Capital can be raised by companies in primary market by any of the following ways. o Public Issue o Right Issue o Private Placement o Preferential Allotment The price offered by the companies in primary market for a security is known as primary price. Companies who offer the security in primary market hire underwriting firm to review the offering and to create the prospectus outlining the price, and other details of the security. Other than underwriting firm, investment bankers are also involved to issue the security in primary market. Investment bankers obtain the commitments from institutional investors to purchase the security in the primary market. Secondary market Secondary market is also known as secondary capital market. In secondary market, investors trade the securities among themselves. The company which has issued the security usually does not participate in the transaction. In secondary market, securities are traded after the company has sold all the stocks or bond which are offered in the primary market. Once the security is registered in the stock exchange investors can freely buy or sell the security in the secondary market. To make a transaction the investors have to involve a broker which typically buys the security on behalf of the investor. The cost to buy the security includes the brokerage or commission which is paid to the broker.