What Are Capital Markets?

By Matthew Frankel, CFP – Updated Oct 8, 2025 at 3:15 AM

Key Points

Capital markets facilitate raising capital and provide platforms for buying and selling investments.
They include stock, bond, and currency markets, distinguishing them from just asset trading spaces.
Understanding primary and secondary markets helps investors engage more effectively in capital markets.

The term "capital market" is often used to reference the stock market, but it actually has a much broader definition. In this article, we'll define capital markets, discuss the role they play in the financial system, and talk about the types of financial markets that are and are not included in this category.

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Stock Market Sectors

There are 11 different stock market sectors, according to the most commonly used classification system: the Global Industry Classification Standard (GICS).

Investing in Financial Stocks

When most people hear the term "financial sector," they think of banks. Although this is certainly the largest part of the financial sector, several other types of companies are included in the sector as well.

What to Invest In

Let's take a closer look at some of the most popular investment vehicles. They may not all be appropriate for you today, but over time, the best investments for your needs can change.

How to Invest in Mutual Funds

A mutual fund is a collection of investment assets packaged as a single investment. Mutual funds allow investors to pool their money to invest in a diverse portfolio of stocks, bonds, or other assets.

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Other types of markets

As we've seen, capital markets are places where investment capital is raised, usually through stocks or bonds, and where these instruments are traded between investors in a liquid and orderly manner. However, there are a few other terms that often get used interchangeably with the term capital markets, but they have different meanings.

Stock markets: A stock market is a type of capital market where equity shares of corporations are issued, exchanged, bought, and sold.
Money markets: Although money market funds are a form of debt, it is short-term in nature. The "capital markets" inclusion of bond and debt markets typically only means long-term debt, which refers to bonds and other debt securities with maturities of a year or longer. Short-term financing is facilitated in money markets -- usually to provide capital for a short-term purpose, such as to fund operations while waiting on customers to pay their accounts.
Financial markets: The broadest "market" term, financial markets refer to the capital markets, money markets, and more. Basically, anywhere money is raised or investments are traded can be classified as a financial market under the broad definition of the term.

Not to add confusion, but the exact definition of some of these terms can depend on the source. For example, many people use the term "financial markets" to include just money markets and capital markets, while others use it in a broader sense. Many experts consider capital markets to be the stock, bond, and foreign exchange markets, but there's some gray area there as well, especially when it comes to derivatives of the investments in these markets (such as options and futures exchanges). So it's best to know the general definition as well as the other types of markets.

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst and personal finance expert covering financial stocks, REITs, SPACs, and personal finance. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, The National Desk, and other TV networks and publications for his financial, stock market, and investing expertise.

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