Editing Capital market (section)

==Examples==

=== Government on primary markets ===
[[File:Barclays HQ.jpg|thumb|[[One Churchill Place]], Barclays headquarters in [[Canary Wharf]], London. Barclays is a major player in the world's primary and secondary bond markets.]]

When a government wants to raise long-term finance it will often sell bonds in the capital markets. In the 20th and early 21st centuries, many governments would use [[investment bank]]s to organize the sale of their bonds. The leading bank would underwrite the bonds, and would often head up a syndicate of brokers, some of whom might be based in other investment banks. The syndicate would then sell to various investors. For developing countries, a [[multilateral development bank]] would sometimes provide an additional layer of [[underwriting]], resulting in risk being shared between the investment bank(s), the multilateral organization, and the end investors. However, since 1997 it has been increasingly common for governments of the larger nations to bypass investment banks by making their bonds directly available for purchase online. Many governments now sell most of their bonds by computerized auction. Typically, large volumes are put up for sale in one go; a government may only hold a small number of auctions each year. Some governments will also sell a continuous stream of bonds through other channels. The biggest single seller of debt is the U.S. government; there are usually several transactions for such sales every second,{{efn|Even if there is no activity from big players, U.S. citizens might be making small investments through channels like ''Treasury Direct''.}} which corresponds to the continuous updating of the U.S. real-time debt clock.<ref name = "IntCM"/><ref>{{cite web|url=http://www.usdebtclock.org |title=U.S. National Debt Clock : Real Time|work=usdebtclock.org}}</ref>

===Company on primary markets===
When a company wants to raise money for long-term investment, one of its first decisions is whether to do so by issuing bonds or shares. If it chooses shares, it avoids increasing its debt, and in some cases the new shareholders may also provide non-monetary help, such as expertise or useful contacts. On the other hand, a new issue of shares will dilute the ownership rights of the existing shareholders, and if they gain a controlling interest, the new shareholders may even replace senior managers. From an investor's point of view, shares offer the potential for higher returns and capital gains if the company does well. Conversely, bonds are safer if the company does poorly, as they are less prone to severe falls in price, and in the event of bankruptcy, bond owners may be paid something, while shareholders will receive nothing.

When a company raises finance from the primary market, the process is more likely to involve face-to-face meetings than other capital market transactions. Whether they choose to issue bonds or shares,{{efn|Sometimes the company will consult with the investment bank for advice before they make this decision.}} companies will typically enlist the services of an investment bank to mediate between themselves and the market. A team from the investment bank often meets with the company's senior managers to ensure their plans are sound. The bank then acts as an [[securities underwriting|underwriter]], and will arrange for a network of [[Broker-dealer|brokers]] to sell the bonds or shares to investors. This second stage is usually done mostly through computerized systems, though brokers will often phone up their favored clients to advise them of the opportunity. Companies can avoid paying fees to investment banks by using a [[direct public offering]], though this is not a common practice as it incurs other legal costs and can take up considerable management time.<ref name = "IntCM">''An Introduction to International Capital Markets: Products, Strategies, Participants'', Andrew M. Chisholm, (2009), Wiley, see esp Chapters 1, 4 & 8</ref>

===Secondary market trading===
[[File:Deutsche-boerse-parkett-ffm008.jpg|thumb|right|An employee at the [[Deutsche Börse]]. Most 21st century capital market transactions are executed electronically.]]

Most capital market transactions take place on the secondary market. On the primary market, each security can be sold only once, and the process to create batches of new shares or bonds is often lengthy due to regulatory requirements. On the secondary markets, there is no limit to the number of times a security can be traded, and the process is usually very quick.{{efn|This is far more likely to occur with shares, as exchanges that allow the automated trading of bonds are not as common, and bonds are generally traded less frequently.}} Transactions on the secondary market do not directly raise finance, but they do make it easier for companies and governments to raise finance on the primary market, as investors know that if they want to get their money back quickly, they will usually be easily able to re-sell their securities. Sometimes, however, secondary capital market transactions can have a negative effect on the primary borrowers: for example, if a large proportion of investors try to sell their bonds, this can push up the yields for future issues from the same entity. An extreme example occurred shortly after [[Bill Clinton]] began his first term as President of the United States; Clinton was forced to abandon some of the spending increases he had promised in his election campaign due to pressure from the bond markets.{{Citation needed|date=December 2021}} In the 21st century, several governments have tried to lock in as much as possible of their borrowing into long-dated bonds, so they are less vulnerable to pressure from the markets. Following the [[2008 financial crisis]], the introduction of [[quantitative easing]] further reduced the ability of private actors to push up the yields of government bonds, at least for countries with a [[central bank]] able to engage in substantial [[open market operation]]s.<ref name = "IntCM"/><ref>{{cite news
|url= http://www.ft.com/cms/s/0/1131abe8-4594-11e4-9b71-00144feabdc0.html |archive-url=https://ghostarchive.org/archive/20221210/http://www.ft.com/cms/s/0/1131abe8-4594-11e4-9b71-00144feabdc0.html |archive-date=2022-12-10
|title= After a life of trend spotting, Bill Gross missed the big shift
|newspaper= [[The Financial Times]]
|author= Gillian Tett
|author-link= Gillian Tett
|date = September 28, 2014
|access-date= October 14, 2014
|url-access=subscription}}
</ref>

A variety of different players are active in the secondary markets. Individual investors account for a small proportion of trading, though their share has slightly increased; in the 20th century it was mostly only a few wealthy individuals who could afford an account with a broker, but accounts are now much cheaper and accessible over the internet. There are now numerous small [[Trader (finance)|traders]] who can buy and sell on the secondary markets using platforms provided by brokers which are accessible via web browsers. When such an individual trades on the capital markets, it will often involve a two-stage transaction. First they place an order with their broker, then the broker executes the trade. If the trade can be done on an exchange, the process will often be fully automated. If a dealer needs to manually intervene, this will often mean a larger fee. Traders in investment banks will often make deals on their bank's behalf, as well as executing trades for their clients. Investment banks will often have a division (or department) called "capital markets": staff in this division try to keep aware of the various opportunities in both the primary and secondary markets, and will advise major clients accordingly. [[Pension fund|Pension]] and [[sovereign wealth fund]]s tend to have the largest holdings, though they tend to buy only the highest grade (safest) types of bonds and shares, and some of them do not trade all that frequently. According to a 2012 ''Financial Times'' article, hedge funds are increasingly making most of the short-term trades in large sections of the capital market (like the UK and US stock exchanges), which is making it harder for them to maintain their historically high returns, as they are increasingly finding themselves trading with each other rather than with less sophisticated investors.<ref name = "IntCM"/><ref>
{{cite news
|url= http://www.ft.com/cms/s/0/0dc3dd2a-ec6b-11e1-8e4a-00144feab49a.html |archive-url=https://ghostarchive.org/archive/20221210/http://www.ft.com/cms/s/0/0dc3dd2a-ec6b-11e1-8e4a-00144feab49a.html |archive-date=2022-12-10 |url-status=live
|title= The hedge funds are playing a loser's game
|newspaper= [[The Financial Times]]
|author= Jonathan Ford
|date = 2012-08-24
|access-date=2012-09-06
|url-access=subscription}}
</ref>

There are several ways to invest in the secondary market without directly buying shares or bonds. A common method is to invest in [[mutual fund]]s{{efn|A mutual fund itself will sometimes purchase securities from the primary markets as well as the secondary.}} or [[exchange-traded fund]]s. It is also possible to buy and sell derivatives that are based on the secondary market; one of the most common type of these is [[contract for difference|contracts for difference]] – these can provide rapid profits, but can also cause buyers to lose more money than they originally invested.<ref name = "IntCM"/>