Definition and Examples of Capital Markets

Rancakmedia.com – Following are the definitions and examples of capital markets that you need to know, let's look at the information carefully in the articles we have provided below.

Trading facilities for long-term financial products traded by companies and institutions. Many companies get additional capital through selling their shares to investors (public) who are interested in investing.

In an attempt to make things simpler, in the past, 1 share lot was worth 500 shares, currently it is 100 shares for 1 lot. As a non-bank financial institution, this decline in value is of course.

It becomes an attraction for those who have never made a share sale and purchase transaction, coupled with the many securities that make procedures easier in terms of criteria.

What is Capital Market?

Capital market is a meeting place for two parties, namely investors (those who invest capital) and issuers (business organizations that want capital) and business entities that need capital.

Financial product long-term such as stocks, mutual funds, debentures, Islamic securities, ETFs, and others are traded.

What is Capital Market

In addition, in KBBI the meaning of the capital market is a financial center, banks and firms that lend money on a large scale.

In Law Number 8 of 2008 concerning Capital Markets, capital markets are all activities related to trading in securities and public offerings, securities issued by public companies and also professions and institutions related to them.

Capital Market Function

The capital market provides many tasks for the people who participate in it. What is the purpose of the capital market? Here are just a few examples.

As a Means for Companies to Obtain Funding from the Community

One of the roles of the capital market is to provide the possibility for companies listed on the capital market to obtain cash from investors by selling shares if properly managed.

As a Sign of State Economic Health

The quantity of purchases and sales that occur in the capital market describes the activities of many companies in a country. Therefore, the role of the capital market will be clearly seen when buying and selling activities increase, which means that the company's operations are running well.

As a Supporting Facility for Sustainable Development Efforts

Another use of capital markets is as a method of supporting sustainable development initiatives. This can be seen from the existence of an environmentally focused stock index (“green index”) and a list of public companies that are good for the environment (“green list”).

As a Supporting Facility for Sustainable Development Efforts

As a Means for the Community to Invest in Companies

The capital market also exists to provide the general public with options for long-term investments.

As a Container for the Creation of New Workers

Many new sectors will be born as a result of the capital market, which in turn will create new jobs.

Capital Market Players and Parties Involved

The following are the parties in the structure of the Indonesian capital market.

  1. Financial Services Authority (OJK)
  2. Stock Exchange
  3. Clearing and guarantee institution (LKP)
  4. Storage and Settlement Institution (LPP)
  5. Securities company
  6. Securities underwriter
  7. Intermediary traders (brokers)
  8. Investment manager
  9. Investment advisor
  10. Capital market supporting institutions

Capital Market Benefits

There are several advantages to participating in the capital market. From the point of view of those who profit from the capital market, there are two types of profit that can be made.

Benefits of the Capital Market for issuers

Some of the benefits of the capital market for issuers, as follows:

The benefits of the capital market for issuers

  1. Companies can reduce their dependence on banks.
  2. Opportunity to generate the largest amount of cash for company growth
  3. Freedom to handle company assets that have been raised because the company does not have permission to do so.

Capital Market Benefits for Investors

Some of the benefits of the capital market for investors, as follows:

  1. Investors can choose to invest in different financial instruments to increase profits
  2. The increase in investment value accompanies economic development.
  3. Investors will get dividends if they invest in stocks and reap floating interest if they invest in bonds

Capital Market Example

What is an example of a capital market? An example of a capital market in Indonesia is the Indonesia Stock Exchange (IDX) or the Indonesia Stock Exchange (IDX).

The IDX itself is a combination of the Jakarta Stock Exchange (BEJ) and the Surabaya Stock Exchange (BES). While examples of capital markets around the world are:

  1. Euronext
  2. Hong Kong Stock Exchange
  3. Japan Stock Exchange Group
  4. London Stock Exchange
  5. NASDAQ
  6. New York Stock Exchange (NYSE)
  7. Shanghai Stock Exchange
  8. Toronto Stock Exchange (TSX)

Difference between Money Market and Capital Market

The papers exchanged in the money market and the capital market are largely responsible for this difference. In the money market, transactions involve the buying and selling of short-term securities such as mutual funds.

The capital market is a place for buying and selling of long-term securities such as stocks and bonds (bonds). In addition, there are differences in terms of risk, disbursement and return on investment.

Difference between Money Market and Capital Market

In contrast, low-risk, low-return money markets are more easily liquidated.
Bonds and stocks, on the other hand, come with a higher level of risk, but they can also make a lot of money over time.

Types of Capital Markets

Sunariyah classifies the capital market into four categories. The main market, secondary market, third market, and fourth market are all included here, along with a brief description of each.

Primary Market

Securities issued by companies that issue shares to investors are first traded in the primary market, known as the primary market.

The primary market is the capital market that trades shares that are sold for the first time before being listed on the stock exchange.

Secondary Market

The secondary market is a place for exchanging securities that are already in circulation. Shares and other securities are traded in this market after being sold or offered in the main market.

The secondary market is separated into the stock exchange market and the over the counter (OTC) market. The OTC market is where the securities of small companies trade, while the stock exchange is where the securities of large companies trade.

Third Market (Third Market)

The third market is a trading location for stocks or other securities outside the OTC market. Brokers run these markets, which are meeting places for people who want to buy or sell securities after the second market closes.

Fourth Market (Fourth Market)

Securities trading in the fourth market occurs between large capacity institutions without involving brokers or capital markets, to reduce brokerage costs. In this kind of business, this kind of transaction is often carried out in large numbers.

Thus, the economics of the various forms of capital markets is full of explanations. The primary market, secondary market, third market, and fourth market are all types of capital markets.

Profits and Risks of Investing in the Capital Market

The benefits and harms of investing in the capital market are well documented. especially if you choose stocks as an investment. Profitability is high, but so is downside risk.

Investment Profits and Risks

Let's take a look at the benefits and dangers of investing in the capital market so you can understand it better.

Advantages of Investing in the Capital Market

Compared to other investment tools, investing in the stock market provides five main benefits, namely:

  1. Easy way of disbursing
  2. Can be done with small funds
  3. The profit rate is quite large
  4. Investment value can continue to grow
  5. It can be used as collateral because applying for a loan using share collateral is legal in the eyes of Indonesian law.

Risks of Investing in the Capital Market

All investment products have different risks from each other. Both capital loss and company bankruptcy are possible outcomes in the capital market.

  1. Capital loss is a loss of invested capital that occurs when the selling price of a financial instrument (such as stocks, bonds or mutual funds) is less than the amount paid to buy the asset. In other words, instead of being a gain like a capital gain, this difference becomes a loss.
  2. Company liquidation is the dissolution of a business entity because it is declared bankrupt. Bondholder rights are usually given first, while shareholder rights are usually given last (if there are still assets to be sold).

FAQs

Below we have summarized some frequently asked questions about the capital market, as follows:

Why Should We Invest in the Capital Market?

As a means of business funding or as a means for companies to obtain funds from the investor community or investors. A facility for the public to invest in financial instruments such as stocks, bonds, mutual funds and other capital market instruments.

Conclusion

The capital market is the meeting point of two parties, namely investors and business people. Long-term financial products such as stocks, mutual funds, debentures, sharia securities, and others are traded.

The quantity of purchases and sales that occur in the capital market describes the activities of many companies in a country. The capital market exists to provide the general public with options for long-term investment.

Thus information about the meaning and examples of capital markets, I hope the above article can be useful and helpful for all of you.

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