A financial market is a market or a marketplace where different individuals or parties can buy and sell financial instruments. These financial instruments include stocks and bonds, financial securities, commodities and agricultural goods. The market is mainly run of the investments made by the individuals, companies or a group of people.
What is investment?
A part of the monthly income that we earn is often spent on essential expenditures and other expenses, while the other part of it is often saved for emergencies or as personal savings. Investment is the process of investing this saved money in properties or other ways, to avoid inflation and in the aim to earn good future returns.
Why is it essential to invest money?
Before investing money in any field, property or goods, it is essential to know the importance of investing money
- Increase the sum
- Save for the future, probably retirement
- To meet the requirements of uncertainty in the future
- To achieve financial goals
- To achieve the cost of inflation
Types of Financial markets
Capital Market: It is a type of market where people participate in buying or sell financial securities like bonds, equity etc. It is also considered as a medium that helps in channelizing the serious funds which can otherwise be put into productive use. It is again divided into to types:
- Primary Market: Also called the IPO, it is a type of capital market that is mainly used by the compares that issue their first-time shares and bonds to the public.
- Secondary Market: In this type of market, the issued securities are either bought or sold.
Money market: It is a part of the financial market that is used for short term monetary transactions. It deals with borrowing or lending money for a short period of time and can sometimes extend to 365 days.
Insurance market: It is a marketplace where individuals or groups buy and sell insurance.
Foreign Exchange: It is a well-known market which deals with buying and selling of foreign currencies. The market is available all day and is closed on the weekends. It is a global market where the exchanges of all global currencies take place in one place. The market is also responsible for setting the rates for the currencies. They have two-tier
- Interbank market where the international or biggest banks exchange currencies with one another
- Over the counter market, which is used by the individuals to trade
Commodity market: it is a platform that facilitates trading which can either be a spot or a derivatives market. In the spot market, commodities are bound and sold immediately, whereas the latter is based on the trades in the spot market.
Derivative Market: This also a form of financial market which supports the trade of derivative instruments like the contracts and options. They’re called so because they’re generally derived from the other forms of the asset. They’re further divided into two parts
- Over the counter derivatives
- Exchange-traded derivatives