The Different Kinds of Financial Markets

The phrase “financial markets” is a broad term pertaining to any marketplace where buyers and sellers can participate in the trade of different assets like equities, bonds, currencies, and derivatives, among others.

Financial markets are usually defined by having transparent pricing, basic regulations on trading, costs, and fees, and market forces that determine the prices of securities that trade.

In this article, we will tackle to Learn Finance Brokerage Education different kinds of financial markets, which can be found in nearly every nation in the world.

Capital Markets

A capital market is one in which persons and institutions trade financial securities. Organizations and institutions in the public and private sectors usually sell securities on the capital markets if they want to raise some funds. Therefore, this type of financial market is also composed on the primary and secondary markets.

Stock markets

Stock markets enable investors to buy and sell shares in companies that are publicly traded.  They are one of the most vital areas of a market economy as they provide companies some access to capital and investors with a part of company ownership in the company. The potential of the Beginners Guide Tips to Forex Trading gains is based on the company’s future performance.

Bond markets

A bond is a debt investment in which an investor loans money to an entity, which can be corporate or governmental. The entity borrows the funds for a definite period of time at a fixed interest rate. Bonds are used by companies, municipalities, states, and US and foreign governments to finance various projects and activities.

Money Markets

The money market is a segment of the financial market in which financial instruments with high liquidity and very short periods to maturity are traded. The money market is used by participants as a way to borrow and lend in the short term – from several days to just under a year.

Money market securities consist of certificate of deposits, banker’s acceptances, US Treasury bills, commercial paper, municipal notes, Eurodollars  , federal funds, and repurchase agreements, among others. Money market investments are also referred to as cash investments due to their short maturities.

Derivatives Market

A derivative instrument is called so because of a reason: it derives its value from the underlying asset or assets it represents.

A derivative is a contract whose price is determined by the market price of the core asset. The derivative market adds another layer of complexity to the financial markets.  Therefore, this market is not usually entered into by inexperienced traders or investors who are looking to speculate.

Some examples of common derivatives are forwards, futures, options, swaps, and contracts for difference.

Forex and Interbank Market

The interbank market is the financial system and trading of currencies among banks and financial institutions, not including retail investors and smaller trading groups. Some interbank trading is conducted by banks on behalf of large customers. But most interbank trading happens form the banks’ own accounts.

The forex market is where currencies are traded, meanwhile. The forex market is the biggest, most liquid market in the world. It has an average traded value that tops $1.9 trillion each day, including all the currencies in the world. Any person,  company, or country can participate in this market.

There’s no central marketplace for currency exchange so trades are conducted over the counter. The market is open 24 hours per day, five days per week. You can  trade currencies worldwide among the key financial centers of London, Tokyo, New York, Zurich, Frankfurt, Singapore, Hong Kong, Sydney, and Paris.