What is capital market? This is where businesses and organizations raise long-term capital to develop production and business, contributing to promoting sustainable economic growth.
1. What is the capital market?
The capital market is where organizations, businesses and governments raise capital to serve long-term development goals such as expanding production and improving business capacity. Participants in the capital market include state agencies, businesses of all economic sectors, and individual investors.
Capital market is actually understood as a large and complex system where financial transactions take place to match the capital needs of organizations with the financial resources available from investors. This is not only a place to raise capital but also creates opportunities for participants to optimize resources and allocate capital effectively.
Transactions in capital markets often involve long-term financial instruments, such as stocks, bonds, and derivatives. This helps ensure stability and supports sustainable development goals for both businesses and the economy as a whole.
2. What markets does the capital market include?
Capital market is not simply a general concept but includes many segments, each with different characteristics and purposes. For easy understanding, loanable capital market model can be classified according to many different criteria.
2.1 Classification by capital circulation method
Capital markets can be divided into two main types based on how funds are circulated:
- Primary capital market: This is where businesses issue securities to the public for the first time to raise long-term capital for production expansion or business development. The primary capital market is divided into two sub-categories: Public primary market (issuing securities to the public through the media) and Retail primary market (selling securities only to a specific group of investors).
- Secondary capital market: Is where transactions of buying and selling securities previously issued in the primary market take place. Here, investors can exchange securities flexibly, creating favorable conditions to maintain market liquidity.
2.2 Classification based on product characteristics on the market
Capital markets can also be divided according to the types of assets traded:
- Stock market: Is a place to buy and sell stocks – securities representing partial ownership of a business. Investors who buy stocks become shareholders and have the right to benefit from the business activities of that business.
- Bond market: Is where organizations issue bonds to raise capital from the public. When buying bonds, investors become creditors and receive periodic interest from the issuing organization.
- Derivatives market: A place to trade derivative financial instruments such as futures contracts and options contracts, helping investors manage risks or seek profits from price fluctuations of underlying assets.
3. Characteristics of capital market
Capital markets have distinctive features that reflect their complexity and flexibility. First, they are connecting intermediary entities in need of capital and organizations or individuals capable of providing capital. Capital market is a trading market. It not only involves the exchange of financial products but also represents the transfer and allocation of financial resources among the participants.
Capital market has character diversity of the types of financial instruments traded, including stocks, bonds, and derivatives. This allows the market to serve the needs of a wide range of people, from businesses to individual investors.
This market also has high liquidity, that is, financial instruments that can be bought and sold easily, allowing investors to transfer capital quickly when needed.
However, capital markets also have risks. large due to the long-term nature of financial instruments. The value of securities can change dramatically depending on the fluctuations of economic and political factors, which makes investors cautious when participating.
4. Importance of capital market
Capital markets not only help organizations raise funds for long-term projects but also play an important role in economic development:
- Capital mobilization for production and business: Capital markets help businesses and governments raise large amounts of finance for projects such as production development, research and infrastructure improvement. Governments can also raise capital through issuing government bonds to invest in infrastructure and social projects.
- Provide profitable investment opportunities: This is where investors can seek profits through investing in stocks, bonds and other financial products.
- Promoting efficient capital allocation: Capital markets help allocate capital from excess investors to businesses and organizations in need, promoting sustainable economic development.
5. Vietnam's capital market - Potential and opportunities
Vietnam's capital market is currently developing rapidly and has great potential. Despite significant achievements in recent years, this market still has many challenges that need to be addressed to achieve comprehensive development.
5.1 Strengths of the capital market in Vietnam
In recent years, the Vietnamese stock market has witnessed a strong shift from capital mobilization through banks to securities issuance. This has created a larger capital market, better serving the capital needs of businesses. Experts believe that the Vietnamese stock market will continue to develop strongly in the coming time thanks to improved policies and legal environment, creating favorable conditions for investors.
5.2 Existing limitations
Despite its great potential for development, Vietnam’s capital market is still underdeveloped and lacks diversity in financial products. The current stock market development index is still low, not attractive enough for international investors. Moreover, the risk level in stock investment is still high, due to the incomplete legal system and the unstable investment environment.
5.3 Solutions for capital market development
To promote the development of the capital market, Vietnam needs to focus on improving the legal environment to facilitate businesses to raise capital and investors to participate. In addition, education and training should be strengthened to improve public understanding of financial instruments and related risks. Promoting the development of new financial products will help the capital market become richer and more attractive to domestic and foreign investors.
Conclude
The capital market is an essential channel for financial mobilization, helping businesses and investors exploit long-term growth potential, while making an important contribution to economic development. Understanding the characteristics and role of the capital market not only helps you make wise investment decisions but also helps you seize opportunities in an ever-changing financial environment. However, to achieve high efficiency, it is necessary to combine with other financial factors and carefully analyze the market. Through this article, HVA Hope you have brought useful information and smart strategies, helping you gain more understanding about What is capital market? and how to use it effectively. HVA will continue to accompany you on your investment journey, achieving your financial goals and sustainable development.
