What are Capital Markets? | Intro to Capital Markets (Part 1)

Summary

This course, led by Neon Park of CFI, introduces learners to the world of capital markets, providing a practical and comprehensive understanding of primary and secondary markets, key participants, and financial products. It explores the roles of sell-side and buy-side firms, explaining how corporations raise capital through new securities and how investors trade existing ones. Through a structured roadmap, the course also examines diverse career paths, including origination, sales, trading, research, and investment management. Learners gain insight into market mechanics, stakeholder interactions, and the skills needed to identify the best fit for a successful career in finance.

Takeaways

• 😀 Capital markets consist of two main types: primary markets (new securities issuance) and secondary markets (trading of existing securities).
• 😀 Primary markets allow corporations to raise large amounts of capital through debt or equity issuance, with proceeds going to the corporation.
• 😀 Secondary markets enable investors to buy and sell existing securities among themselves, providing liquidity without involving the issuing corporation.
• 😀 Investment banks act as financial intermediaries: origination teams handle primary market issuances, while sales and trading teams support secondary market activity.
• 😀 Institutional investors or portfolio managers are the main buyers in both primary and secondary markets.
• 😀 In primary markets, security prices are fixed at issuance; in secondary markets, prices fluctuate based on supply, demand, and other factors.
• 😀 Sell-side firms focus on selling securities and providing liquidity, while buy-side firms focus on buying securities to fulfill investment mandates.
• 😀 Key primary market participants include the issuing corporation, the investment bank’s origination team, and institutional investors.
• 😀 Key secondary market participants include investors trading with each other and investment bank sales/trading teams or electronic platforms facilitating trades.
• 😀 The course explores both sell-side (origination, sales/trading, research) and buy-side (traditional and non-traditional investment management) career paths, including day-in-the-life insights.

Q & A

What is the main objective of the 'Introduction to Capital Markets' course?

The main objective is to provide a practical and meaningful understanding of capital markets, including their structure, participants, key terminology, and potential career paths, enabling learners to make well-informed career decisions.

What are the two main types of capital markets and how do they differ?

The two main types are primary and secondary markets. Primary markets involve the issuance of new securities by corporations to raise capital, while secondary markets involve the trading of existing securities among investors, without the involvement of the issuing corporation.

Who are the key participants in the primary market?

Key participants in the primary market include the issuing corporation, the investment bank's origination team, and institutional investors who purchase the newly issued securities.

How does the role of an investment bank differ between primary and secondary markets?

In the primary market, investment banks facilitate new issues through their origination teams. In the secondary market, investment banks provide liquidity and trading support through their sales and trading departments.

What is the difference in pricing and frequency of transactions between primary and secondary markets?

In the primary market, securities are sold at a fixed price during a one-time issuance. In secondary markets, prices fluctuate constantly based on supply, demand, and other factors, and trading occurs continuously among investors.

What are some examples of products traded in capital markets?

Products include common shares, bonds, currencies, commodities, and derivatives. Primary markets handle new issues, while secondary markets handle the ongoing trading of existing securities.

What is the distinction between buy side and sell side institutions?

Sell side institutions primarily sell securities and provide market liquidity, including investment banks and brokerage firms. Buy side institutions primarily buy securities to meet investment mandates, such as asset managers and fund managers.

Can you give an example of how a corporation might raise capital in the primary market?

For example, if Amazon wants to acquire a software company, it may contact an investment bank like Goldman Sachs. The bank's industry group analyzes whether debt or equity issuance is best, then the origination team executes the new issue and sells the securities to institutional investors.

What career paths are covered in the course for the sell side and buy side?

On the sell side, the course covers origination in primary markets and sales, trading, and research in secondary markets. On the buy side, it covers investment management from both traditional and non-traditional perspectives.

Why is understanding primary and secondary markets important for someone pursuing a career in capital markets?

Understanding these markets helps professionals identify their role in the flow of capital, know how securities are issued and traded, and assess which career path aligns with their skills and interests, ensuring effective participation and decision-making in the industry.

How does the course help learners gauge their personal fit for different capital markets roles?

The course provides explanations of group functions and structures, along with 'day in the life' examples for various roles, helping learners evaluate how their skills and preferences match specific positions in capital markets.