Capital market is the part of the world’s financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments. Explained in clearer terms, it refers to market for any financial assets where buyers and sellers engage in trade of equity-backed securities such as bonds and stocks. This market route the excess wealth of savers to companies, agencies and government institutions that spend them and put them into productive use usually long term investment. Capital market is a measure of inherent strength of the economy. It is one of the best sources of finance for players in the market and offers a spectrum of investment avenues to investors, which in turn encourages capital creation in the economy. This market is divided into primary market which deals with the trade of new issues of financial securities and secondary market which deals with the trading previously-issued or existing securities.

Just like a motherboard is a core part of a computer system, a market maker is a core part of a capital market and can be an individual or company that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread: the difference between the prices quoted for the offer and bid for the financial instrument such stocks, futures contracts, options, or currency pairs. Market makers are responsible for maintaining liquidity and orderly price transitions in the capital market and they are the middlemen that buy and sell stock on a regular and continuous basis at a publicly quoted price.

As earlier mentioned market makers are compensated for the risk of holding assets referred to as bid-offer spread. The risk they face is a reduction in the value of the financial instrument after they’ve purchased it from the seller before selling it to a buyer. Therefore they charge a spread on each financial security they deal in, a factor causing increase in the value of such security and increasing the cost of procurement by the buyer.

For example, if a financial security such as stock or bond have a bid price of $50 and an ask price of $50.05. This translates that the market maker purchased the security at $50 and is selling a $50.05 to prospective buyers. This means that he is making a profit of $0.05 from such transaction. Sounds meager? Financial securities are traded in high-volume so the small bid-offer spread ads up to large daily profits for the market maker.

With Railz, a blockchain-based next-generation protocol that leverages on the technological convenience of the ethereum blockchain and its core values such as disintermediation and decentralization, the need for centralized counterparties like market makers are removed in capital market transactions. Buyers and sellers are brought together without stress and transactions are carried out seamlessly without the need to pay extra charges that end up in the pocket of the central party (market makers).

With Railz, capital markets will be disrupted as it will be made to work on a peer-to-peer basis because it enables sophisticated commerce and other things including machine-to-machine interaction (IOT) to be carried autonomously without human intervention. As such, trading of securities will be better facilitated and quick valuation of financial instruments among others will be achieved with ease

For more on Railz’s impact on capital markets : https://vimeo.com/271629096

To join the Railz ICO whitelist: http://www.railz.org/whitelist