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Capital Markets

Capital markets are the financial markets where long-term investments are made. Don’t expect the majority of trades made on these markets to be paid back in full for generally more than a year! There will usually be huge amounts of money involved in any one deal.

What a capital idea!

The capital markets are mostly used by governments or companies to raise long-term finances. They tend to refer to the stock/equity market and the debt market, particularly bonds. These are the markets that really drive the economy.

The capital markets are split into the primary markets and secondary markets:

Primary markets – usually the markets governments and companies will use to raise capital long term by issuing new bonds (usually a government’s preferred method) and equity. So investors have the opportunity to borrow money and pay back the amount with interest over a set period of time (bonds), or buy stocks and shares (ownership in a company that can give them rights to a portion of profits) on this particular market. This is Initial Public Offering (IPO) territory – when these securities are offered on the market for the very first time.

Secondary markets – these are the markets for bonds and equity that already exist to be traded. The London Stock Exchange and the New York Stock Exchange are examples of secondary markets.

So what do the bankers do?

Investment bankers tend to represent companies looking to raise long-term finance on these markets more than governments these days: many governments now issue bonds themselves via online auctions, rather than getting investment banks to sell them on their behalf.

When a company wants to sell equity (ownership) or bonds to raise finance, investment bankers will act as a mediator for the process between them and potential buyers on the primary markets. This is called ‘underwriting’. They’ll set up a team of top brokers to seek out buyers for the securities.

Traders and sales professionals have to be great negotiators and able to keep cool under pressure in their work. Sales will speak directly with the client wishing to sell on the capital markets initially, sometimes in face-to-face meetings. There’s a highly technical side to these trades too: the majority of trades are now made via electronic trading, so there are developers and quants (quantitative analysts) on hand to come up with the calculations and programmes to price these securities and monitor the markets. And, as ever, the back office team are there to ensure the trades are cleared and settlements (payments/exchange of ownership documents etc.) are all made on time and the terms of each trade contract are held down to a tee.

As you can probably imagine, clients in capital markets are likely to be a pretty big deal. You’ll could be working on behalf of governments, or some of the world’s biggest, most influential companies.

If you fancy a capital markets role, then get applying for investment banking internships now! This is an incredibly competitive sector with some potentially sky high salaries if you do well, and you’ll need to have experience in the field before you can go for graduate roles. Investment banks tend to prefer finance degree backgrounds, but you won’t necessarily be excluded from trader/sales roles if you can show you have a head for numbers and financial markets with investment banking work experience.