Posted On: 21-05-2024
Understanding Capital Markets
Trading in Capital Markets offers several benefits to investors.
Capital markets provide opportunities for investors to earn significant returns on their investments. Through strategic buying and selling of securities such as stocks, bonds, and derivatives, investors can capitalize on market fluctuations and asset appreciation. Not to forget, they are highly liquid, meaning investors can easily buy and sell securities at prevailing market prices. This liquidity allows investors to enter and exit positions quickly, facilitating efficient capital allocation.
The capital market is a segment of the Financial Market where long-term debt or equity-backed securities are bought and sold. It's a market for raising funds for medium to long-term purposes, such as funding Business Expansion, Financing Infrastructure Projects, or Government Borrowing.
The primary regulator overseeing capital markets is the Capital Markets Authority (CMA).
They are responsible for licensing and regulating all market intermediaries, approving prospectuses for public offerings, and ensuring compliance with securities laws and regulations. We also have Nairobi Security Exchange (NSE), this is a principal securities exchange in Kenya where equities, bonds, and other securities are traded. The NSE plays a central role in facilitating capital formation and providing a platform for investors to buy and sell securities.
What are the securities traded?
The securities traded in Capital Markets Are Equities and Bonds.
For the Equities, Companies listed on the NSE offer shares to the public, allowing investors to buy and sell ownership stakes in these companies. By purchasing these shares, investors essentially buy ownership stakes, or a portion of the company. The value of shares can fluctuate based on various factors including company performance, market conditions, and investor sentiment. You are advised to buy and sell shares through the NSE. Equities are considered higher risk investments compared to bonds due to their potential for higher returns but also higher volatility.
Bonds are debt securities issued by Governments or Corporations to raise capital. We have two types of bonds: Government and Corporate bonds. Both bonds are traded on the NSE, providing investors with fixed-income investment opportunities. When you buy a bond, you are essentially lending money to the issuer for a specified period of time, during which the issuer pays periodic interest payments (coupons) to the bondholder and at the end of the bond's term, known as maturity, the issuer repays the principal amount to the bondholder.
Investors are however advised to do their research so as to understand the basics of how capital markets function and Zurit consulting is already doing that for you. Our next planned a Hybrid Wealth Creation Training program starts on the 20th June 2024. Mark your calendars and plan to attend we grow together and create sustainable wealth for you and your family!