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Scott
Tominaga notes that one of the most important functions of a company is raising
capital. As he points out, there are, broadly speaking, two main ways a company
can finance its operations: taking on debt or issuing equity. While debt
entails borrowing a fixed amount with an agreement to repay it with interest
over time, issuing new equity entails selling an additional ownership stake to
another person or entity.
The distinction
The
stock market is the venue for buying and selling stocks and pertains to several
well-known marketplaces such as Nasdaq, the London Stock Exchange, and the New
York Stock Exchange, to name a few. Though stocks were originally bought and
sold in person on a trading room floor, now almost all of these transactions
occur via computers.
Meanwhile,
Scott Tominaga explains that the debt or bond market is the arena for investing
in fixed income assets. It is worth noting that there isn't a single physical
exchange for bonds since most of these transactions are made by individual
investors or between large institutions and brokers.
bankingschool.co.in
Clearing up confusion
The distinction between debt and equity and their associated markets must be made at the onset, as most beginners in the industry often have to deal with the confusion of whether debt financing or equity financing is more suitable for their situation.
To
sum it up, investors and traders in the debt market buy and sell bonds, while
those in the equity market buy and sell shares of stock.
What
are your thoughts on debt markets and equity markets? Do you prefer one over
the other? Do you have any tips on navigating these markets? If so, do share
them with Scott Tominaga in the comments section below.
Scott Tominaga is a seasoned professional in the financial services and hedge fund industry. He has written several blogs and articles on a broad range of topics. Click this link to read past articles from Scott Tominaga.
