Definition - What does Capital Market mean?
A capital market is where the organized trading of securities and investments takes place. Capital markets serve buyers and sellers of equity and debt instruments. Because capital is a crucial component of the economy, capital markets are vital.
Divestopedia explains Capital Market
Capital markets include both primary and secondary markets. Through these markets, private firms are able to raise funds and to issue an IPO. While the original purpose of capital markets was to trade long-term debt, they now serve a broader function through stock, bonds and derivative trading.
Capital markets are different from money markets. Capital markets tend to utilize stocks, which are used medium to long-term, whereas money markets mature anywhere from one day to one year. A capital market must provide capital for terms that exceed one year.
There are a range of participants in capital markets:
- Individual investors
- Institutional investors
- Municipality and other government investors
- Companies and other organizational investors
- Banks and other financial institution investors
A capital market investor will typically expect the maximum return possible at the lowest risk while capital users will want to raise capital at the lowest cost. These markets are overseen by financial regulators to protect investors against many possible issues, with a focus on fraud prevention.
Thousands of computer-based electronic trading systems monitor capital markets all over the world. The New York Stock Exchange is one such example. Other similar systems tend to be found in Hong Kong and London.
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