The capital market is the market for long-term loans (debentures & bonds) and equity capital. Companies and the government can raise funds for long-term investments via the capital market. The capital market includes the stock market, bond market and primary market. Thus, organized capital markets are able to guarantee sound investment opportunities.
The capital market can be contrasted with other financial markets such as the money market, which deals in short term liquid assets and futures markets, which deal in commodities contracts.
What is Capital Market?
What is financial Market?
The financial markets are markets which facilitate the raising of funds or the investment of assets, depending on viewpoint. They also facilitate handling of various risks. The financial markets can be divided into different subtypes: Capital markets consists of:
- Stock markets, which facilitates equity investment and buying and selling of shares of stock. Bond markets, which provides financing through the issue of debt contracts and the buying and selling of bonds and debentures.
- Money markets, which provides short term debt financing and investment..
- Derivatives markets, which provides instruments for handling of financial risks.
- Futures markets, which provide standardized contracts for trading assets at a forthcoming date.
- Insurance markets, which facilitates handling of various risks.
- Foreign exchange markets.
What is stock market?
A stock market is a market for the trading of publicly held company stock and associated financial instruments (including stock options, convertibles and stock index futures).
Many years ago, worldwide, buyers and sellers were individual investors and businesspersons. These days markets have generally become "institutionalized"; that is, buyers and sellers are largely institutions whether pension funds, insurance companies, mutual funds or banks. This rise of the institutional investor has brought growing professionalism to all aspects of the markets.
Who are the main participants in the capital market?
The capital market framework consists of the following participants:
- Stock Exchanges
- Market intermediaries, such as stock-brokers and Mutual Funds
- Investors
- Regulatory institutions (e.g. SEBI)
How risky is stock market?
The general theory goes that the higher the profit, the greater the risk. Since there is scope for high profit in the Stock Market, investing in the Stock Market can be risky. In fact, more than 80% of the people who put money in the market lose it and a majority of the rest are barely able to protect themselves from losses. Only a minuscule minority of investors are able to garner any substantive profits.
How do I buy financial instruments as investment option?
One cannot buy directly from the market or stock exchange. A buyer has to buy stocks or equity through a Stock Broker, who is a registered authority to deal in equities of various companies. In effect a lot many intermediaries might come in between the buyer and seller, as brokers do their business through many sub-brokers and the like.