Capital markets consist of both primary and secondary markets. Computer-based online networks underpin the bulk of current primary and secondary markets.
Now, you need to know the differences between primary and secondary markets.
Primary and Secondary Capital Markets
Primary markets are open to particular investors who purchase securities directly from the issuing firm. These securities are in the form of Initial Public Offerings (IPOs).
It sells its stocks and bonds to large-scale and institutional investors, such as hedge funds and mutual funds, when a company goes public.
On the other hand, a regulatory body supervises the market comprises venues. For instance, the Securities and Exchange Commission (SEC) where existing or trade between investors.
Inside the secondary market, the issuing companies have no position. The New York Stock Exchange ( NYSE), and Nasdaq are secondary market examples.
Capital Markets Expanded
For any financial asset, capital markets may refer to the markets in a broad sense. There are three kinds of capital markets expanded, namely corporate finance, financial services, and public markets.
1. Corporate Finance
The stock market in this field is where investable stock is available for non-financial businesses. Investment capital includes the external funds included in the weighted average cost of capital calculation.
In other words, it is common and preferred equity, public bonds, and private debt. Those use in a return on capital calculation.
Corporate finance capital markets may also refer to equity funding, except debt.
2. Financial Services
The stock market composes of financial institutions operating in private rather than public markets. In contrast to broker-dealers and public exchanges, these include investment banks, private equity, and venture capital firms.
3. Public Markets
In comparison to the debt, bond, fixed income, money, derivatives, and commodity markets, capital markets may refer to stock markets.
Capital markets may also include stock, debt, bond, or fixed-income markets, by mirroring the sense of corporate finance.
They may also apply to investments receiving a tax treatment on capital gains. While short-term gains — assets held under a year — are taxed as income according to a tax bracket, long-term gains are charged at different rates. These rates are often associated with privately arranged transactions through investment banks or private funds such as private equity or venture capital.
