Equilibrium in the capital market represents a point where supply and demand meet for investments.
Capital markets are places where individuals and companies buy and sell various investment securities. Like any market in a free market economy, capital market equilibrium represents a point where supply and demand meet for investments. There are two break-even points in this market: one for an individual investment and one for the aggregate of all investments bought and sold in this market. Equity market equilibrium can be difficult to achieve as the price for various investments can change rapidly for a number of reasons. In some cases, buyers may have more power in the capital market to influence the price of investments.
On the supply side, companies and other organizations issue investments such as stocks, bonds and other items for investors to buy. Capital markets include a large number of companies from different sectors. The different types of investments in these industries can result in several different points that lead to capital market equilibrium. For example, there may be a break-even point for the energy sector, another for retail, and yet another for the automotive industry. Reaching equilibrium in each of them will normally have different prices for the investments traded in each one of them.
Buyers are often free to select the investments they most want in a free market economy that boasts a large capital market. To achieve capital market equilibrium, companies must offer investments that are cost-effective and financially rewarding. This can be difficult at first, as many different industries compete with each other, and some industries or industries are much riskier than others. In addition, each company can generally dictate its own terms for debt securities, such as bonds and similar instruments. Therefore, it is difficult to define a capital market break-even point for all companies engaged in this activity.
In short, break-even points in any economic market indicate that there is just enough supply to meet all the demand for an item. Individual companies can get to this point with equities more easily than the entire capital market. Companies can issue a certain number of shares and then wait for feedback from investors, many of whom comment on, rate and buy or sell the investment. If there are too many stocks on the market, the price per individual share is low, depressed by oversupply. Companies can then buy some of the shares back from investors, reducing the overall supply in the market and increasing the price per unit of the shares.