Capital Markets can be described as a market that buys and sells equity and debt instruments. Capitals Markets focus savings and investments between suppliers of capital, for example institutional investors, and users of capital for example businesses, government and individual.
As a general rule, the size of a nations capital markets is directly proportional to the size of its economy.
There are four main global capital markets, which are:
- US Stock Exchange
- UK Stock Exchange
- Shanghai Stock Exchange
- Hong Kong Stock Exchange
The global markets are constantly interacting and trading with each other along with smaller global market economies. If one market gets affected then chances are that other capital markets will be affected. A prime example of this is the 2008 financial crisis which affected nearly every market economy.
The whole idea of capital markets is risk versus reward, whereby people and/or companies try to maximise the reward with the lowest risk.
Primary and Secondary Markets
Put simply a primary market is where securities are bought and sold from issuing companies. These are where securities are first traded.
A secondary market is where securities are traded by investors.
The main difference between a primary and a secondary market is that on a secondary market, securities can be traded between investors.