Capital Markets: Overview

Capital markets are the financial exchanges, which exist so thatಞ companies and governments in need of cash to operate or expand can sell assets to investors with money to lend or invest. The stock, bond, and commodities markets are among the best-know🍎n capital markets.

Capital markets were created to bring buyers and sellers together in an efficient process. Their physical locations hav😼e b🐟ecome increasingly irrelevant as most of these transactions are accomplished electronically.

How Capital Markets Work

The term “capital market” is a broad one that’s used to describe the in-person and digital spaces in which various entities trade types of 澳洲幸运5官方开奖结果体彩网:financial instruments. These venues can include the stock market, the bond market, and the currency and 澳洲幸运5官方开奖结果体彩网:foreign exchange (forex) markets. Most markets are concentrated in major financial centers such as New York, London, Singapore, and Hong Kong.

Capital markets are composed of the suppliers and users of funds. Suppliers include households through the savings accounts and products they hold with banks as well as institutions such as pension and retirement funds, life insurance companies,ꦏ cha﷽ritable foundations, and nonfinancial companies that generate excess cash.

The users of the funds distributed on capital markets include home and motor vehicle purchasers, nonfinancial companies, and governments financing infrastructure investment and operating expenses. Capital mark🌱ets are used primarily to sell financial products such as equities and debt securities, however.

Equities are stocks that represent ownership shares in a company. 澳洲幸运5官方开奖结果体彩网:Debt securities such as bonds are interest-bearing IOUs.

Primary vs. Secondary Markets

C♏apital markets are divided into two categories:

• 澳洲幸运5官方开奖结果体彩网:Primary markets where new equity stock and bond issues are sold to investors
• 澳洲幸运5官方开奖结果体彩网:Secondary markets which trade existing securities

Primary Markets

A company engages in the primary capital market when it publicly sells new stocks or bonds for the first time such as in an 澳洲幸运5官方开奖结果体彩网:initial public offering (IPO). This market is sometimes referred to as the new issues market. The company that offers the securities hires an 澳洲幸运5官方开奖结果体彩网:underwriting firm when investors purchase securities on this market. The firm reviews it and creates a 澳洲幸运5官方开奖结果体彩网:prospectus꧃ outlining the price and other details of the securi🔴ties to be issued.

Small investors are oftenꦿ❀ unable to buy securities on the primary market because the companies and their investment bankers want to sell all the available securities in a short period to meet the required volume. They must focus on marketing the sale to large investors who can buy more securities at once.

Marketing the sale to investors can often include a roadshow or a dog and pony show in which investment bankers and the company’s leadership travel to meet with potential investors and convince them of the value of the security that’s being iss♓ued.

Secondary Markets

The secondary market includes venues that are overseen by a regulatory body such as the SEC where these previously issued securities are traded between investors. Issuing companies don’t have a part in the secondary market. The 澳洲幸运5官方开奖结果体彩网:New York Stock Excღhange (NYSE) and Nasdaq are examples of these markets.

The secondary market has two categories: the auction and the 澳洲幸运5官方开奖结果体彩网:dealer markets. The auction market is home to the 澳洲幸运5官方开奖结果体彩网:open outcry system where buyers and sellers congregate in one location and a💖nnounce the prices at which they’re willing to buy and sell their securities. The NYSE is an example. People trade through electronic networks in dealer markets. Most small investors trade through dealer markets.

The Bottom Line

Capital markets are a very important part of the financial industry. They bring togethꦦer suppliers of capital and those who seek it for their own purposes. This can include governments that want t♒o fund infrastructure projects, businesses that want to expand, and even individuals who want to buy a home.

Capita꧒l markets are divided into two categories: the primary market where companies list new issues for the first time and the secondary market which allows investors to purchase already-issued securities. The key benefit of these markets is that they allow money to move from those who have it to those who need it for their own purposes.