Both the stock and bond markets are a part of the capital markets. Any government or corporation requires capital (funds) to finance its operations and to engage in its own long-term investments. To acquire these funds, a company raises money through the sale of securities - stocks and bonds in the company's name. For example, when a company conducts an initial public offering (IPO), it is tapping the investing public for capital and is therefore using the capital markets. When a country's government issues Treasury bonds in the bond market to fund its spending initiatives, it is also using the capital markets. (Read more about initial public offerings in Top IPO Nations and The Biggest IPO Flops.)
When companies and governments sell securities, they do so in the primary market. When investors trade these securities on exchanges and over the counter, it's called the secondary market. Thus, both the primary and secondary markets for stocks and bonds make up the capital markets. The capital markets are extensively regulated; in the United States this regulator is the Securities and Exchange Commission (SEC).
Risk And Returns
In this section, we'll examine the factors that affect stock and bond returns, the history of these markets, how they have performed and what influences performance.