Capital markets refer to financial markets where long-term debt or equity-backed securities are bought and sold by individuals, companies, and institutions. These markets play a crucial role in facilitating the flow of capital between investors and entities that need financing for various purposes, such as funding business operations, expansion, or investment projects.

Key features of capital markets include:

1. Securities: Capital markets deal with various financial instruments, including stocks, bonds, derivatives, and other complex financial products.
2. Participants: Participants in capital markets include individual investors, institutional investors (such as mutual funds, pension funds, and insurance companies), corporations, governments, and financial intermediaries like investment banks and stockbrokers.
3. Primary Market: This is where new securities are issued for the first time through Initial Public Offerings (IPOs) for stocks or bond offerings. Companies raise capital by selling these new securities to investors.
4. Secondary Market: Once securities have been issued in the primary market, they can be subsequently traded in the secondary market. This is where investors buy and sell existing securities among themselves, and the issuing company does not directly benefit from the transactions.
5. Exchanges and Over-the-Counter (OTC) Markets: Capital markets can operate on organized exchanges like the New York Stock Exchange (NYSE) or NASDAQ, where standardized rules govern trading. Alternatively, some securities are traded in the OTC market, where transactions occur directly between parties without an organized exchange.
6. Price Determination: Prices of securities in the capital markets are influenced by supply and demand dynamics. Factors such as company performance, economic conditions, geopolitical events, and investor sentiment can affect prices.
7. Regulation: Capital markets are usually subject to government regulations to ensure fairness, transparency, and investor protection. Regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States, oversee these markets.
8. Risk and Return: Capital markets offer opportunities for investors to earn returns on their investments, but they also carry inherent risks. Investors must carefully assess their risk tolerance and make informed investment decisions.

Capital markets are essential for the efficient allocation of resources in an economy and are a critical component of modern financial systems. They provide a means for investors to deploy their funds in a wide range of investments and enable businesses and governments to access the capital needed to fund projects and operations.