What is the capital market? How to invest effectively

Article overview

The capital market is where trading activities of long-term financial instruments such as stocks, bonds, and other securities take place. This is a connection between investors with idle capital and businesses, organizations or governments that need to mobilize capital to serve production, business and economic development activities. This article will provide customers with an overview of the capital market and instructions on how to participate effectively.

What is the capital market?
What is the capital market?

What is the capital market?

The capital market is a financial market in which long-term debt (more than one year) or payback securities are traded. To put it more simply, the capital market is a place that connects people with idle money (investors) with businesses or governments that need to raise capital.

Classification of capital markets

The capital market is classified according to many different criteria. Here are some common classifications:

By type of commodity traded:

  • Stock market: Place where transactions of buying and selling stocks, bonds, fund certificates and other securities take place.
  • Derivatives market: Where trading of derivative contracts takes place based on the value of underlying assets such as stocks, bonds, market indices,…
  • Currency market: A place to trade short-term, highly liquid financial instruments such as valuable papers, treasury bills, and certificates of deposit.

According to capital circulation method:

  • Primary market: Where businesses or governments raise capital for the first time through issuing stocks and bonds to investors.
  • Secondary market: After being issued on the primary market, stocks and bonds will be bought, sold and exchanged between investors on the secondary market.

In addition, we classify by market: Large/small capital market; Developed/developing capital markets.

Primary market
Primary market

Functions of the capital market

The capital market plays an important role in the economy, performing many key functions:

  • Mobilizing capital for businesses and governments: The capital market is an effective capital mobilization channel for businesses and governments, meeting capital needs for investment, production and business expansion and economic development.
  • Allocate capital effectively: The capital market helps regulate capital flows from those with idle capital to those in need of capital, ensuring capital is used effectively, promoting economic growth.
  • Minimize risks for investors: By diversifying investment portfolios in the capital market, investors can minimize risks and optimize profits.
  • Promote innovation: The capital market provides capital for startups and businesses in the technology sector, contributing to promoting innovation and scientific and technical development.
  • Reflecting the health of the economy: The capital market is sensitive to macroeconomic fluctuations. The growth or decline of capital markets often reflects the economic situation of a country.

Financial instruments on the capital market

In the capital market, there are many different financial instruments that investors can choose from. Each tool has different characteristics, levels of risk and profit.

  • Share: Represents ownership of a portion of a company’s capital. Investors buy stocks with the expectation that the stock price will increase and receive dividends from the company.
  • Bonds: A debt certificate issued by a business or government. The bond buyer will lend money to the business/government and receive periodic interest.
  • Certificate of deposit: A type of term savings deposit, issued by banks and other financial institutions.
  • Derivative securities: A financial instrument whose value depends on the price of an underlying asset, such as a stock, bond or commodity.

How to participate effectively in the capital market

To participate in the capital market effectively, customers need to note the following points:

  • Master the knowledge: Before investing, customers need to carefully learn about the capital market, financial instruments, risks and potential profits.
  • Determine investment goals: Customers need to clearly define their investment goals (desired profit, investment term, ability to accept risk…) to choose the appropriate investment tool.
  • Choose a reputable securities company: Customers should open securities trading accounts at reputable securities companies with experience and good support services.
  • Risk management: Customers need to have a clear risk management strategy, allocate investment capital appropriately, and should not focus on a single type of asset.
  • Market tracking: Customers need to regularly monitor the market, update information and adjust their investment portfolio when necessary.

Consulting services for effective capital market participation

To support customers in investing effectively in the capital market, Long Phan provides professional investment consulting services, including:

  • Consulting on choosing financial instruments suitable to customers’ investment goals and risk tolerance.
  • Analyze, evaluate the market and make investment recommendations.
  • Support customers to build and manage investment portfolios effectively.
  • Providing market information and in-depth analysis reports.
  • Consulting on other related issues.
Capital market consulting
Capital market consulting

The capital market is a potential investment channel, providing attractive profit opportunities for investors. However, this market also has many potential risks. To participate in effective investment, customers need to be equipped with knowledge, skills and choose an appropriate investment strategy. Please contact Long Phan via the hotline: 0906735386 for professional investment advice and support.