Capital market: what is it and how does it work?
Discover what the capital market is once and for all!
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You may have heard of capital markets. If so, then you probably understand that they are part of a country’s financial structure.
Through it, investors can leverage organizations' operations and obtain profits from future negotiations.
In this content, you will discover what all this means in practice.
To better understand the concept of capital markets, continue reading.
What is the capital market?
The capital market is a market created for the trading of financial assets.
It is made up of stock exchanges, brokerages and authorized financial institutions.
Furthermore, as the name suggests, this part of the financial system is focused on the capitalization of companies.
It is through the capital market that organizations are able to acquire resources to carry out their financial projects.
By bringing business closer to investors, this part of the financial system plays an essential role in any economy.
After all, companies generate wealth, and a healthy economy depends on these organizations having access to financial resources so that they can finance their main activities.
How does the capital market work?
As you already know, it is in the capital market that various types of financial assets are traded.
But how does all this work in practice? There are three major categories of assets, also called securities, traded on the capital market:
Actions
Shares represent a fraction of a company's share capital.
This means that when purchasing a share, the investor becomes a partner in the organization.
The shares (or bonds) of a company are traded on the Stock Exchange, an organized market where securities issued by publicly traded companies are traded.
When an institution decides to expand its operations, it often needs money.
For this reason, many of them become publicly traded companies and offer shares to obtain resources.
In this way, interested investors can acquire securities and become part of the company's group of partners.
For the company offering the shares, the resources raised, in addition to increasing the company's market value, can be used in projects and activities.
For those who invest, there are also many advantages.
After all, investors become partners in companies and can make a profit through the appreciation of shares and dividends (portion of the company's profits distributed among shareholders).
Debentures
Debentures are fixed income securities issued by companies.
They are issued by companies to finance growth projects or the acquisition of new companies.
Basically, it works like this: imagine a company that needs a large amount of money to pay off debts or expand its business.
Therefore, instead of taking out bank loans, it issues debentures on the market, so that it is possible to obtain resources.
An interested investor can buy a debenture and receive interest on the money invested in the company.
In other words, it is as if the investor has become a creditor of the company.
Commercial papers
Although they are not the most common investment options, commercial papers stand out for their great liquidity.
It is a simple form of financing for companies and brings good profit opportunities for investors.
But after all, what is this?
The commercial papers, or promissory notes, are short-term debt securities issued by companies that do not act as financial institutions.
The titles arise due to a need for financing, which will benefit the company in question, whether to increase its production capacity, carry out a new project or help with financial health in more delicate times.
Among the main characteristics of commercial papers, we can highlight that they are short-term securities and do not have a real guarantee of return.
Issuing these debt securities is advantageous for companies, as the cost is much lower than bank loans.
The investor also benefits, as he does not need to wait a long time to redeem the income.
What are the types of capital markets?
Now that you understand the concept of this part of the financial system, it's time to learn about its types.
Basically, there are two: primary and secondary.
Primary market
In the primary market, the acquisition of the financial asset is made directly from the issuer.
An example of a primary market operation is IPOs or initial public offerings.
When an investor buys shares in a company that has just started trading on the B3, he is carrying out transactions on the primary market.
Secondary market
After the primary offering, the company's shares continue to be traded.
But in the secondary market, asset trading is carried out directly with other investors.
For example, let's say you decide to buy shares in a certain company. When you buy them, you are trading with another investor who already owns those shares.
For this reason, there is no need for the company to be involved in this negotiation.
Due to its characteristics, the secondary market is much larger than the primary market.
How to invest in the capital market?
The first step is to understand your investor profile.
In other words, you must evaluate your preferences, needs and risk tolerance in relation to investments.
Setting financial goals is also important. What do you really want to achieve by becoming an investor? Is your focus more on the short term or the long term?
Once you understand your profile and goals, it becomes easier to choose securities and define a value for your investments.
In addition, it will be necessary to register with a stockbroker, as they are basically the bridge between investors and the capital market.
Conclusion
The capital market is responsible for intermediation between savers and borrowers.
And investing in the capital market is something that should be part of an investor's strategies, as it can bring excellent gains, especially in the long term.
In addition to bringing investors closer to institutions, it strengthens the Brazilian economy and offers the possibility of diversifying the asset portfolio.
