People often refer to the ‘financial markets’, but it is of course a rather vague term. It can describe any number of financial systems. That’s why we want to make a quick guide to distinguish these different institutions.
First of all, a ‘financial market’ describes markets with three general characteristics. They have transparent pricing, has regulations (usually on costs, fees, and trading in general). They also have market determiners. These indicate the probable price for securities.
So, what are these financial markets?
Stock markets
This market trades shares of companies. This is the market people usually refer to when talking about trading. It helps companies receive funds when they are not able to gather it themselves. Therefore, it has helps man many business get to where they are today. There are two parts to this market. There is the primary market, buying new stocks. Then there is the secondary market, where people trade stock after the initial release.
Bond markets
These are loans that people can gives to companies or government officials. These establishment will then pay back interest on the loan. They work quite similarly to stocks in that it gives some places a leg up where they usually would not be able to. Of course, since it is a loan, these establishments do have to pay back the full amount eventually.
Money markets
Here, investors trade in very high, but very short debt investments. It almost acts like a loan. This covers a whole range of instruments, like commercial papers, municipal notes, federal funds.
Spot markets
Here, sellers deal in real goods, or commodities, that they trade in hopes of gains. It means markets where the trade is effective immediately, no matter the contract. Here, a savvy trader can make great gains quickly. Great loses, however, are equally possible.
Derivative markets
This market is all about selling long term contracts for possible gains. These contracts differ severely. These includes futures, forwards, swaps, options, and contracts for differences.
Forex markets
Forex markets are all about trading currencies for gains. It is the largest market in the world in terms of liquidity. This is not all that surprising a fact as it mainly involves trading money directly. Neverthless, it is a financial market of great significance.
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