Trading without financial markets knowledge is like going shopping without knowing where the mall is. Only when you answer the questions: what are financial markets and how do they work, can you master them for consistent profits. With this blog, we will have financial markets explained in the most easy-to-understand way to make sure you can start your trading career right and easily.
FINANCIAL MARKETS 101: EVERYTHING YOU NEED TO KNOW BEFORE TRADING
Financial markets can be confusing as they go by many terms. They are also called capital markets, Wall Street, and even simply “the markets.” In the simplest words, financial markets are where traders buy and sell assets. These marketplaces include (but not limited to) the stock market, bond market, Forex market, and derivatives market. They are vital for capitalist economies to operate smoothly.
Understanding the Financial Markets Financial markets are vital to facilitating the smooth operation of capitalist economies by allocating resources and creating liquidity for businesses and
Financial Markets need a thorough understanding.
What Are Financial Markets? – Financial Markets 101
With the regulation of SEBI in the market, investors feel secure to invest in the market, which helps to regulate the economy.
Financial Markets: New York Stock Exchange (NYSE)
Pros of Financial Markets
Financial Markets offer investors to invest in shares for a short or long duration depending upon the amount of investment.
From financial markets, companies can even raise capital.
entrepreneurs. They create securities products providing a return for those who have excess funds (lenders/investors) and make these funds available to those who need additional money (borrowers).
To ensure that the markets set prices that are efficient and appropriate, financial markets rely heavily on informational transparency. The market prices of securities may not indicate their intrinsic value because of macroeconomic forces such as taxes.
Investors can be guided about the market investment and provided accurate information by intermediaries.
Cons of Financial Market
Thanks to financial markets, firms can easily get loans at low cost and with lower interest rates, and even without collateral.
Types of Financial Markets If you do some Googling, you might see different answers to “How many types of financial markets are there?”. Some say 5 financial markets, some others say 7 types of markets. In this blog, we will list down 8 types of financial markets based on their different instruments traded and their maturity.
Types of Financial Markets: Capital Market.
To provide financing, the Bond market accumulates debt through bond issuance and bond trading.
The processing of the financial market can be time-consuming as it requires lots of formalities like opening a Demat account, approaching depositors, etc.
This process involves strict rules and regulations, which might discourage many investors from entering.
Capital market The capital market aids in raising long-term capital, generally over 1 year. It comprises a primary and a secondary market and can be divided into two main subgroups: The stock market and the Bond market.
Financial markets are prone to market risk i.e., which means the customer may get huge losses.
Money Market
A primary market (a.k.a “new issue market”) is where securities like shares and bonds are being created and traded for the first time without using any intermediary in the process. A secondary market (a.k.a “aftermarket”) is the place where investors purchase previously issued securities like stocks, bonds, futures, and options from other investors, instead of issuing companies themselves. The secondary market is where the bulk of exchange trading takes place and it is what people are talking about when they refer to the “stock market”. Some well-known secondary markets to name are the NYSE and Nasdaq.
To provide financing, the Stock market shares the ownership of a company through stock issuing and trading.
The money market allows economic units to manage their liquidity positions through lending and borrowing loans on a short-term basis, generally under 1 year. It facilitates the interaction between those with temporary surpluses of funds and those who are experiencing a temporary shortage of funds.
Types of Financial Markets: Money Market. For easier understanding, via a standard instrument, one can borrow money within a quite short period of time, the so-called “call money”. After one day, from 12:00 PM today until 12:00 PM on the next day, these funds become “on call” and are callable at any time. In some cases, “call money” can be borrowed for up to one week. Foreign Exchange Market
Types of Financial Markets: Commodity Market.
Commodity Market
Types of Financial Markets: Foreign Exchange Market.
The foreign exchange market aids foreign exchange trading. With an average traded value of more than $5 trillion per day, it’s the largest, most liquid market in the world. It includes every currency in the world and any individual, company or country can participate in it.
Exchange-Traded Derivatives
Hard commodities: raw materials typically mined, such as gold, oil, iron, rubber, ore, etc.
This market manages the trading in primary products which occurs in about 50 major commodity markets where entirely financial transactions increasingly outrun physical purchases which are to be delivered.
Soft commodities: typically grown agricultural primary products such as wheat, coffee, cotton, sugar, etc.
Derivatives Market Types of Financial Markets: Derivatives Market.
Commodities are commonly divided into two subgroups.
It facilitates the trading of financial instruments such as options and futures contracts and is used to aid control financial risk. The instruments derive their value mostly from the value of an underlying asset such as stocks, bonds, currencies, commodities, or mortgages. The derivatives market is classified into two parts which are of completely different legal means and nature to be traded.
Types of Financial Markets: Exchange Traded Market. These are standardized contracts (futures, call options, and put options) traded on an organized futures exchange. Trading in such uniformed instruments requires payment of an initial deposit from investors which is settled through a clearing house and aims at removing the risk for any of the two parties not to cover their obligations. Over-the-Counter Derivatives
These are tailor-made contracts privately negotiated and traded directly between the two parties, without using the services of an intermediary. Securities such as forwards, exotic options, swaps, forward rate agreements, credit derivatives, and other exotic derivatives are almost always traded this way. These contracts remain largely unregulated and provide the seller and buyer with more flexibility in meeting their needs. Market
Types of Financial Markets: Over-the-Counter Derivatives.
Insurance
Who Are the Main Participants in Financial Markets?
Types of Financial Markets: Insurance Market.
Financial markets are vital for a healthy economy as it brings people together to create more values.
They provide a place for participants like investors and debtors, regardless of their size, to receive fair and proper treatment.
They help reduce the unemployment rate because of the many job opportunities they offer.
Why Are Financial Markets Important?
The insurance market is meant to relocate various risks. Insurance is used to transfer the risk of a loss from one counterpart to another in exchange for a payment. This market is where two peers, an insurer and the insured, or the so-called policyholder, meet in an attempt to strike a deal primarily used by the client to hedge against the risk of an uncertain loss.
They provide individuals, companies, and government organizations with access to capital when needed.
The main participants in financial markets include banks, primary dealers (PDs), financial institutions (FIs), stock exchanges, brokers, investment bankers (merchant bankers), foreign institutional investors (FIIs), custodians, and depositories.
Main Participants in Financial Markets.
Article Source: https://libraryoftrader.net/financial-markets-knowledge
