Author Topic: What's the difference between a capital market and the stock market?  (Read 1709 times)

Maliha Islam

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What's the difference between a capital market and the stock market?

Capital market is a broader term that includes the stock market and other venues for trading financial products. The stock market allows investors and banking institutions to trade stocks, either publicly or privately. Stocks are financial instruments that represent partial ownership of a company. These documents are used extensively by companies as a means of raising necessary capital. Within the stock market itself are primary and secondary markets that trade among banks underwriting stock and public investors trading stock, respectively. Capital markets may trade in other financial securities including bonds, derivative contracts such as options, various loans and other debt instruments, and commodity futures. Other financial instruments may be sold in capital markets and these products are becoming increasingly sophisticated. Some capital markets are available to the public directly while others are closed to everyone except large institutional investors. Private trade, mostly between large institutions with high-volume trades, occurs via secured computer networks at very high speeds. These markets all trade financial securities, so they are all capital markets. The stock market is a very significant portion of the total volume of capital market trades.

The stock market has several very popular markets available for public trading. The Nasdaq, Dow Jones, and the S&P 500 trade in considerable volume every day within the United States and are the most significant stock markets. Other countries have popular stock markets, such as the Nikkei 225 in Japan. Each market has specific times during the day when it remains open. By trading through different markets, it is possible for investors to actively trade stocks throughout the day.