Capital market is a platform where investors and buyers get into the trade of financial securities, including
stocks
, bonds and so on. The transactions may be is carried out by participants, such as individuals or even institutions.
Capital market helps in channelizing excess funds from savers to the organizations, which later invest them into something productive. In general, this market trades mostly in long-term securities.
Capital market includes primary
markets
and secondary markets. The primary market includes the trade of new issues of stocks and other securities. On the other hand, secondary market deals with the exchange of existing or previously-issued securities.
Another crucial division in the capital market is made on the basis of the nature of security traded, i.e. stock market and bond market.
Capital markets
majorly serve two purposes: Firstly, it gathers different investors who have capitals along with the companies seeking capital through debt and
equity
instruments.
Secondly, and more importantly, the capital markets offer a secondary market where the investors in these securities can exchange them among themselves at the standard market prices. Without the liquidity created by a secondary market, investors would not be interested in purchasing equity and debt instruments for fear of being unable to unload them in the future.
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