Capital Market

A Capital Market is a financial market where long-term securities such as stocks, bonds, and other investments are bought and sold. It connects investors who have capital (money to invest) with businesses and governments that need funding for growth, development, or other long-term projects.

Key Features of Capital Markets:
Long-Term Investment Focus: Unlike money markets (which deal with short-term loans), capital markets handle investments typically lasting more than one year.
Instruments Traded: Includes equity (stocks) and debt (bonds).
Participants: Involves individual investors, institutional investors, companies, and governments.

Types:
Primary Market: Where new securities are issued (e.g., IPOs).
Secondary Market: Where existing securities are traded between investors (e.g., stock exchanges)

Derivatives Market

A Derivatives Market is a financial market where contracts based on the value of underlying assets (like stocks, currencies, commodities, or interest rates) are bought and sold. These contracts are called derivatives because their value is “derived” from something else.

Key Features of Derivatives Markets:
Underlying Assets: Include stocks, indices, commodities, currencies, and more.
Types of Derivatives:
Futures – Agreements to buy/sell an asset at a future date at a predetermined price.
Options – Give the right (but not the obligation) to buy/sell at a certain price before a deadline.
Swaps & Forwards – Typically used by institutions for interest rate or currency exchange agreements.
Purpose:
Hedging: Managing risk by protecting against price fluctuations.
Speculation: Earning profits by predicting price movements.
Arbitrage: Profiting from price differences in different markets.