Capital market
Transactions on capital markets are generally managed by entities within the financial sector or the treasury departments of governments and corporations, but some can be accessed directly by the public.
As an example, in the United States, any American citizen with an internet connection can create an account with TreasuryDirect and use it to buy bonds in the primary market.
Various private companies provide browser-based platforms that allow individuals to buy shares and sometimes even bonds in the secondary markets.
Physically, the systems are hosted all over the world, though they tend to be concentrated in financial centres like London, New York, and Hong Kong.
The main entities seeking to raise long-term funds on the primary capital markets are governments (which may be municipal, local or national) and business enterprises (companies).
[2] The money markets are used to raise short-term finance; including loans that are expected to be paid back as early as overnight.
In contrast, the "capital markets" are used to raise long-term finance, in the form of shares/equities, and loans that are not expected to be fully paid back for at least a year.
It can take many months or years before the investment generates sufficient return to pay back its cost, and hence the finance is long term.
In the widest sense, it consists of a series of channels through which the savings of individuals and institutions are made available for industrial and commercial enterprises and public authorities.
Moreover, capital markets provide opportunities for both individuals and institutions to diversify their investments, thereby managing risk and potentially enhancing returns over the long term.
But since about 1980 there has been an ongoing trend for disintermediation, where large and creditworthy companies have found they effectively have to pay out less interest if they borrow directly from capital markets rather than from banks.
However, since 1997 it has been increasingly common for governments of the larger nations to bypass investment banks by making their bonds directly available for purchase online.
Companies can avoid paying fees to investment banks by using a direct public offering, though this is not a common practice as it incurs other legal costs and can take up considerable management time.
On the primary market, each security can be sold only once, and the process to create batches of new shares or bonds is often lengthy due to regulatory requirements.
Sometimes, however, secondary capital market transactions can have a negative effect on the primary borrowers: for example, if a large proportion of investors try to sell their bonds, this can push up the yields for future issues from the same entity.
Following the 2007–2008 financial crisis, the introduction of quantitative easing further reduced the ability of private actors to push up the yields of government bonds, at least for countries with a central bank able to engage in substantial open market operations.
There are now numerous small traders who can buy and sell on the secondary markets using platforms provided by brokers which are accessible via web browsers.
It is also possible to buy and sell derivatives that are based on the secondary market; one of the most common type of these is contracts for difference – these can provide rapid profits, but can also cause buyers to lose more money than they originally invested.
Most advanced nations like to use capital controls sparingly if at all, as in theory allowing markets freedom is a win-win situation for all involved: investors are free to seek maximum returns, and countries can benefit from investments that will develop their industry and infrastructure.
