What Are Capital Markets & How Are They Different from Money Markets?

What are capital markets? If you're interested in shaking up your investments, you should check out capital and money markets. Read on to learn all about them!

As a newbie or seasoned investor, you must always try to grow your investment intelligence. It all starts with learning all there's to know about the financial markets. You might've heard about capital markets and money markets.

Are these markets two birds of a feather? You may think you invest in both types of markets.

Yet, you may only be investing in capital market securities. So, what are capital markets?

Don't have a clue? We'll tell you all the must-know facts about capital markets and how they differ from money markets. Read on to start diversifying your investment strategies today.

Navigating the Financial Markets: Are All Markets the Same?

You might've asked yourself, why should you care about the financial markets? While the economy and politics are history indicators, the markets tell us where we're headed. Each market services a certain segment of our economy and handles certain commodities.

To navigate the financial markets, you must become familiar with the capital and money markets. If you're a newbie or seasoned investor, you might've been investing in the first type of market.

So, What Are Capital Markets?

The first step to great investing is learning the basics about capital markets. These markets are where individual investors and organizations trade securities. Debt and equity securities trade in this market.

The capital markets are split between the primary and secondary markets. In the first market, companies, and organizations issue any new securities on the exchanges. The secondary market is where all investors purchase financial securities from other investors.

Are Capital and Money Markets the Same?

You may think money markets refer to the money market accounts that work like a savings account but offer higher rates. Yet, these markets are where corporate borrowers and the government issue debt securities.

Money market securities are high quality and short term investments. These organizations issue the securities to cover their short-term cash flow needs. Treasury Bills is one if not the most popular money market security.

You may invest in these securities if you're looking for high-quality debt investments. The buy and hold approach is the best strategy in money market investments.

The main difference between the capital and money markets is who issues and trades securities in each market. Another difference is that money market securities are one of the most liquid investments. In contrast, capital market securities aren't as liquid due to the investment issuers.

Also, individual investors can't buy most money market securities straight from the issuers. An exemption is buying Treasury Bills through the TreasuryDirect website.

Yet, most investors add these assets to their portfolios through money market funds issued by mutual funds. In contrast, you can buy and sell capital market securities in the secondary market.

The Bottom Line

While you may not learn it overnight, you must always try to master your investment strategy to grow your portfolio. It all starts with learning what are capital markets and other key facts about the markets.

You may be investing in capital market securities. But, you should consider investing in at least one type of money market security.

These liquid debt securities can help you diversify and grow your portfolio. You should develop your own investment strategy. It's recommended to aim to diversify by investing in the two major financial markets.

Want to learn more about the financial markets and how to grow your investments? Check out our Investing section to read more interesting articles.