Definition of Capital Market

The capital market is a marketplace where investors can buy and sell debt and equity instruments. It provides a channel for investment and saving between suppliers of capital such as an institutional or retail investor and user of capital like individual, business and government.

The capital market consists of the primary market. Where new bonds and shares are traded, and secondary markets, where existing securities are traded.

Explanation

Capital markets play a vital role in order to contribute to the economy. Besides, it is the capital market that keeps up with the demand and supply of equity and debt capital. It is not a compact unit further, it is a highly decentralized system made up of major parts: money market, stock market, and bond market.

Capital markets are a broad category for the facilitation of buying and selling of financial instruments. Capital markets operate in accordance with the guidelines provided by the Securities and Exchange Commission in the United States or other financial regulators in other countries.

The size of the financial market of a country is directly proportional to the size of the economy.  Most of the trades are executed through computerized electronic systems. In addition, some of them are accessed by the general public, while others are more tightly regulated. There are numerous participants in the financial market, including individual investor, municipalities, governments, companies, banks, and financial institutions.