Financial market is any market place where buyers and sellers participate in trade of assets or securities.
Example’s of such securities are equities,derivatives,bonds,currencies etc.
Also called as exchange-like stock exchange or commodity exchange etc.
Financial Markets Introduction Video
These exchanges might have a physical location or purely run electronically.
And examples of few exchanges are
And example of electronically run exchange is-NASDAQ.
NASDAQ STANDS FOR (NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATIONS)
Every country has its own financial market.
Names of these markets change in each country.
This makes them unique and easy to remember.
We call it transaction-when exchange of such assets happen.
These transactions can be between stocks,futures,bonds,options or any commodities etc.
In a capital market buying and selling of equity and debt instruments occurs.
Issuer’s raise capitals for longer period of time in these markets
Capital markets consists of two categories i.e.
We can call it as house of newly formed securities.
And you can buy newly formed securities in these primary markets.
Primary markets mainly involves transactions between issuers and investors.
You might have heard of IPO i.e initial public offerings.
Investors can buy these issued companies through IPO.
Capital raised through these IPO is used for business development activities.
Securities are sold for first time in these primary markets.
And these primary markets are also called NEW ISSUE MARKET(NIM)
Now lets think these investors have invested for long period of time.
What if they want to liquidate there investment.
So how do they liquidate(converting securities into cash) there investment??
Well this is why we have secondary markets.
These markets allow traders and investors to buy and sell existing securities.
Liquidating of securities is easy with secondary markets.
Investors can easily convert there investment into cash.
Types Of Capital Markets
Marketplace where you can buy and sell shares of publicly listed or traded companies.
Bond market is called as debt,credit or fixed income markets.
Fixed interest rates is source of income in these bonds.
Participant need not worry about principle amount.
Best examples of securities in bond markets are insurance,mutual funds,government bonds etc.
When compared with stock market,bond market is a safe choice.
c)Over The Counter(OTC)
Its also called as dealer market and a type of secondary market.
Securities that is not listed on major exchanges like NASDAQ can be traded at OTC.
These companies listed on OTC are literally smaller organisations.
They are less expensive for trading.
And they have less regulations when compared with stock market.
And first OTC in INDIA was established in 1990 called as Over-The-Counter Exchange Of India – OTCEI
You can trade in highly liquid securities which have short term maturities.
Banker’s acceptances,certain bills,notes,commercial papers and certificates of deposits etc are all part of money markets.
Derivatives markets trade securities like “stock futures” derived from underlying assets-such as stocks.
It is in a form of contract which expires every month.
Futures,options,forward contracts,swaps and CFD(contracts for difference) are examples of derivatives.
Forex market involves trading of major currencies like USD,EUR,JPY etc.
More cash flows in these markets.
And is the largest traded market across the world.
5.Spot Market Or Cash Market
Transactions between buyer’s and seller’s happens instantly.
And spot settlement occurs at current market price(CMP).
All major exchanges like NASDAQ,NYSE,NSE,BSE etc comes under cash markets.
Trading of currencies between banks and large investors which excludes retail investors.
You can buy shares of companies in these markets through exchanges or OTC.
Its mainly used to raise money through traders and investors by the companies.
It us also known as Stock Markets.
Its a market place for debt securities and commercial paper securities issued by Govt’s and companies.
If you are a trader or investor you can buy these debt securities and short term commercial paper’s.
This market allows buying,selling and trading of raw or primary products.
You can further classify commodity markets into two sub categories.
All natural commodities,mined or extracted falls under hard commodities.
For example GOLD,OIL etc comes under hard commodities.
This includes Agricultural products or livestock like wheat,corn,cotton,sugarcane etc.
As mentioned above these commodities doesn’t require mining.
Financial Market is a wide topic and you might be dealing in only few of its segments.
Some may deal in stocks,commodities and other securities and some may trade in forex.
Basic understanding of financial markets gives you an opportunity to explore more about it.
If you are interested in learning about financial market you can start with our free course.