Financial market is a place where equity, bond, online trading currency, derivatives, are traded. In this, there are many big players and small players also. Some of the big players like New York Stock exchange, who trades in trillions of dollars and small players are dealing in bonds, securities etc. This market is a place where businesses grow their cash, companies cuts their risks and investors are making more money. We can say that, investors and business go to financial market to make more money.
To be more precisely, Financial market is a place where buying and selling of financial assets as well as securities take place. It acts as an agent or say mediator between the investor and collector by mobilising capital between them. This is very vital for running smooth operations of capitalist economy by allocating resources and creating liquidity for investors as well as for businesses. Also, Financial markets heavily dependent on transparency of information to ensure that the market set prices that are efficient and correct.
Different Types of Financial Markets
Different types of financial markets with selling of Financial instruments and their roles include the stock market, the bond market, forex, commodities, and the real estate market, among others. Also, Financial markets may also be broken down into money markets, listed vs. OTC markets, capital markets and primary vs. secondary markets.
Types of Financial Markets
- Money Markets: This market typically trades in high liquid with short maturities (less than a year), and lower interest return than other markets.
- Forex Market: Also, termed as Forex exchange market, it is a financial market where investors trade in currencies. Across the entire world, this is the most liquid financial market.
- OTC (Over the Counter) Market: This market doesn’t have physical location and trading is done through electronically. This manage public stock exchange, which is not listed on the NASDAQ, American Stock Exchange, and New York Stock Exchange. Over the Counter market trade with companies are generally smaller ones that trades in less regulation and has low-priced.
- Bond Market: A bond in the financial market is a place where investors loan money on bond as security for a set if time at a predefined rate of interest. Bonds are issued by states, corporations, municipalities, and governments around the world. This market is also called as fixed income, credit or debt market.
- Derivatives Market: In this market trades in future and options contracts and other financial products such as stocks, currencies, bonds, commodities, interest rates etc.
- Cryptocurrency Market: In recent years’ cryptocurrency came into existence, where cryptocurrency tokens are traded worldwide through online crypto-exchanges. Users or say investors are more prudent to fraud and account hacked because this market is centralized.
Functions of Financial Market
Explained below are some of the important functions of the financial market
- This provides liquidity to traded assets.
- It gives- less cost-effective and time consuming as parties don’t have much time as well as money to find probable clients to deal with securities. Apart from that, it also cuts cost by letting valuable information about the securities traded.
- It mobilises savings by trading it in the most productive methods.
- It also supports in deciding the securities price by interacting with the investors/parties depending on the demand and supply into the market.
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