Stock Market

Types of Financial Markets and Their Roles

A financial market is a broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies, and derivatives. These markets are defined by having transparent pricing, basic regulations on trading, costs and fees. As the name suggests, financial markets are seen as a type of current marketplace that witnesses for being an avenue for various purchases and sales. The sale and purchase may be in the form of stocks, bonds, or foreign exchange. In the present scenario, some alternative names like “Capital Market” and “wall street”, also find wide acceptability for its varied names. The market forces determine the prices of securities that are in trade. The financial market is found in every nation of the world. If this is put on a more straightforward platter, investors and businesses go to these financial markets to gain huge profits and raise their businesses.

Financial Adviser

If you can imagine a clear picture, how about thinking about the bank that holds your savings account? The bank can use your money and those of other investors to lend a third-party, right? In this way, a mutual growth is established for all the depositors. So, the bank can be stated as a financial market that benefits for two groups: debtors and the depositors. That was something that made sense, right? In the present context, some are very small, with only few participants, while others are like the New York Stock Exchange (NYSE) and the FOREX markets – trade trillions of dollars daily. Get into the shoes of the financial markets to understand it effectively.

Financial Adviser

Investors have access to a large number of financial markets and exchanges with a vast array of financial products. Some of these markets have always been open to private investors; others remained the exclusive domain of major international banks and financial professional like the way ETX Capital, which plays a vital role in the UK capital market for spread betting. Shares, bonds, commodities, and other alternatives are usually traded in spread betting.

Types of financial markets

Capital Market

It is the one where individuals and institutions trade financial securities. Organizations and institutions in the public and private sectors also sell securities in the capital markets in order to raise funds. This type of market is composed of both the primary and secondary markets. A company raises money through the sale of securities – stocks and bonds in the company’s name. If you are over the wheels for investing for a long-term basis, you can choose the capital market for raising your capital. The capital market can be subdivided into two dynamic subgroups: the stock market and the bond market.

Before you step in to know the various aspects of the subgroupings of a capital market, what do you understand by primary market and secondary market?

Primary market

The primary market is also known as the “newissue market”. If you are gearing up for investments and trading of bonds and shares for the first time, without any intermediary, the primary market can be the best option for you. Now, you may be wondering, who uses this financial market?

Indeed, the primary markets are used by many private companies. The primary financial market helps those private businesses who want to grab a tag of a publicly traded entity. It can issue and effectively sell its stocks at the initial public offering. The IPOs are considered as regulated processes that are usually facilitated by the finance securities and the investment banks. They are the ones who decide the starting price range and keep an eye over the sales directly for the various investors.

Secondary market

It is also known as “aftermarket”. It is a financial market wherein investors can purchase any previously issued securities. It includes the bonds, stocks and also the various options from other investors. In this financial market, you can witness a bulk of exchange trading that occurs. Moreover, whenever you hear people say about the trading in “stock market”, in a nutshell, they are referring to these types of financial market. It includes Nasdaq, NYSE and other profound exchange companies.

Stock Market

allows investors to buy and sell shares in publicly traded companies. They are one of the most vital areas of a market economy as they provide companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company’s future performance.

Bond Markets

Bond Markets is a debt investment in which an investor lends money to an entity (corporate or governmental), which borrows the funds for a defined period at a fixed interest rate. Companies to finance a variety of projects and activities use these.

Money Market

Money Market is a segment of the financial market where financial instruments with high liquidity and very short maturities are traded for. This market is used as a means for borrowing and lending in the short term, from several days to just under a year. Moreover, if you have a close eye for this type of financial market, you could notice some highlighted aspects of the same. What can be those?

The money market helps to effectively facilitate the interaction between various institutions and individuals with temporary allocation of funds. If any of the two parties are running out of money on a temporary basis, the money market can prove as a boon for them. One can also borrow money within a short interval of time with a standard called “call money”. Interestingly, these are funds that are borrowed for just a day. That same money on the next day would be called “on call” and that is callable at any time. In rare cases, one can borrow the “call money” for a larger period of time, maybe for two-three weeks, depending on the borrowing schemes.

Apart from the terms and conditions of the “call money”, major banking and finance institutions go in for “interbank market”. It allows to borrow funds within a relatively longer period of time. That may go from several weeks to a year. Interestingly, the small investors and the traders do not participate in the “interbank market”. It is to be noted that most of the financial proceedings for the “interbank market” is carried out by the extra liquidity or in cases of surplus of funds.

The loans for the “interbank market” are switched with the interbank interest rates. This is the interest rate that is being charged on the various short-term loans between the different banks. For instance, in London, the interbank interest is known as LIBOR and LIBID.

Cash or Spot Market

is highly sophisticated, with opportunities for both big losses and big gains. Contracts are bought and sold on the spot . Prices are settled in cash “on the spot” at current market prices. This is notably different from other markets, in which trades are determined at forward prices.

Derivates Market

A derivative is a contract and the contract price is the market price of the core asset.

FOREX and Interbank Market

It is an interbank market is the financial system where trading of currencies among banks and financial institutions is done. Trading is performed by banks on behalf of large customers.

In FOREX market currencies are traded over the counter, there is no central marketplace. It is the largest, most liquid market in the world.

Commodity market

The commodity market aims to manage the trading of the various primary products. The product is seen to take place in about 50 major commodity markets. On a more straightforward approach the commodity may be divided into two categories: hard commodities and soft commodities.

Hard commodities: These include the typical raw materials that are mined in larger bulks. Some examples are oil, rubber, iron ore and gold, to name a few.

Soft commodities: These commodities include the typical agricultural primary products. The examples include cotton, sugar, wheat and coffee, to name a few.

In conclusion

It may seem that the financial markets are theplaces that facilitates the traders and investors to get involved in buying and selling various bonds and currencies. On asimpler note, we can say that the financial markets are a place that facilitates an effective exchange of financial securities and financial instruments. In the present context, the financial exchange is also carried over the phone and the internet.

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