What is a Capital Market?

A capital market is any financial market in which long-term debts and equity-backed securities are traded (i.e., bought and sold). These securities are typically  Capital markets are defined as markets in which money is provided for periods longer than a year.Capital markets channel the wealth of savers to those who can put such wealth to long-term productive use; such as companies or even governments making long-term investments. The capital is typically overseen by financial regulators or monitors such as the Nigerian Securities and Exchange Commission (SEC).

Modern capital markets are almost invariably hosted on computer-based electronic trading systems; most can be accessed only by entities within the financial sector or the treasury departments of governments and corporations, but some can be accessed directly by the public. There are many thousands of such systems, most serving only small parts of the overall capital markets. Entities hosting the systems include stock exchanges, investment banks, and government departments. 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.

How the Stock Exchange Operates

So many people wonder what the stock market is about. They have heard stories about people making millions by just sitting at home and investing their money, even as others have also lost money in the process of investing. Well here is to let you understand how the stock exchange works. Read carefully below-

The Bottom Line: Stocks are issued by companies to raise cash, and the stock then continues to trade on a exchange. Overall stocks have risen over the long-term, which makes owning shares attractive. There are also additional perks such as dividends (income), profit potential and voting rights. Share prices also fall, though, which is why investors typically choose to invest in a wide array of stocks, only risking a small percentage of their capital on each one. Shares can be bought or sold at any time, assuming there is enough volume available to complete the transaction, which means investors can cut losses or take profits whenever they wish.

Stock/Share: When people buy a company’s stock, what that means is that they are buying a piece of the company. And whenever such a company needs to raise money, it issues shares. The raising of shares is done through what is called an initial public offering (IPO) which is the price of shares set based on how much the company is worth. People pay money to buy shares from a company after the advertisement of the IPO. And every money raised by selling the shares is then used by the company to run its business and make profit, even as the stocks or shares are traded on the floors of the Nigerian Stock Exchange. Meanwhile, some of the profits made by the company are accumulated for the shareholders who can sell their shares at any time to get their money back…

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SS2 Economics Third Term: Capital Market