Capital Markets: A Simple Explanation

My friends (I don't actually know anyone who works there, but I like them) at Investopedia define Capital Markets as:

The venues where funds are exchanged between buyers (capital suppliers) and sellers in the form of equity securities, bonds, or other financial assets.

So, in its simplest form, capital markets is the term that means bringing together the folks who have money (investors) with those that need it (businesses or governments).

Of course, there's always more to the story. We can talk about who these investors are (there is regulatory guidance on retail and institutional investors - content for another day), but they're typically banks and investors. The funds are typically structured as loans (senior secured first lien, as an example), bonds (a type of debt) and equity (money to purchase stock/ownership/shares in a company).

Businesses may use these funds to acquire another company, or expand into a new product vertical. Governments may use the capital to fund large infrastructure projects.

Here's the best example of Capital Markets in action: the stock market, such as the New York Stock Exchange (NYSE).