Capital Markets - Explained
What are Capital Markets?
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Table of ContentsWhat are Capital Markets?How Do Capital Markets Work?Benefits of the capital marketClassifications of Capital MarketsAcademic Research on Capital Markets
What are Capital Markets?
A capital market refers to the financial market where individuals or institutions buy or sell securities. This is the place to trade stocks, bonds and debt securities. Capital markets allow companies to sell their stocks to many investors to get working capital and expand the company.
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How Do Capital Markets Work?
- An investor owns part of the company they buy shares from in proportion to the percentage of shares he holds.
- Capital markets make the buying and selling of securities easy by adding liquidity.
- Capital markets are also responsible for the volatility of security prices.
- The investor is not guaranteed benefits when he sells or buys securities.
- Investors choose when to buy or sell securities as there is no specific purchase or sale period
Benefits of the capital market
- Offers short term or long term benefits to investors.
- Allows investors to diversify their risk portfolio.
- Allows easy access to investment in the best companies in the world.
- Gives companies a platform to source for finances for daily running and for expansion.
- Investors have access to a wide range of products and different levels of risk.
- It allows institution to concentrate on more productive activities.
Classifications of Capital Markets
Capital markets are categorized based on the assets traded in them, time and structure. According to structure, there are organized markets which are regulated and supervised and there are OTC markets where investors can negotiate. Bases on time, there are primary/issue markets and secondary markets. In primary markets, securities issued are transferred for the first time while in secondary markets, there are purchases and sales of the securities that were issued in primary markets.