What are capital markets?

Capital markets are defined as markets where long-term debt and equity securities are issued and traded. This includes the selling and buying of stocks (equity) and bonds (debt) that typically have maturities longer than one year. The purpose of capital markets is to facilitate the allocation of financial resources, enabling companies to raise funds for growth and expansion, while providing investors the opportunity to earn returns on their investments.

The focus on long-term securities distinguishes capital markets from other types of markets, such as money markets, which deal primarily with short-term loans and instruments. Additionally, while real estate and commodities are important in the broader financial ecosystem, they do not define the specific structure and function of capital markets. Therefore, the correct characterization as markets for trading long-term debt and equity securities accurately reflects the essence and function of capital markets.