You may have heard the word financial market a lot of times but have you ever thought about what a financial market is, says Rowan Relton. It refers to a place where asserts or securities are bought or sold. The financial market has many names: money market, capital market, and many more. These financial markets can be in physical form or can provide online services.
In this blog, Rowan Relton will talk about financial markets, their types and function.
Types of financial markets
1- Stock market
The most popular financial market is the stock market but what are stocks? They are the ownership claims on the business. The price of stocks depends upon the investor’s sappiness regarding the performance of the business other factors are also involved, says Rowan Relton – commodity trader. The stocks are brought by authorized brokers only. The stock market has its risks so be careful before you step into this trading sector.
2- Bond or debt market
What are bonds? They are financial instruments in which the provider of the bond is indebted to repay the principal amount with predefined interest to the buyer. And this market involves buying, issuing, government bonds, corporate bonds, and other fixed income security. If the provider fails to repay the debt it is considered as default. Every bond has a different maturity tenure and interest rate.
3- Commodities market
Raw materials that grow through farming are known as commodities. Like maize, cocoa, sugar, etc. commodities are traded in their physical form. It trades like stocks and allows investors to theoretically profit from variations in commodity prices without investing directly in future indentures, says Rowan Relton – commodity trader.
4- Derivatives market
Derivatives market refers to buying and selling contacts like future options forwards and swaps but what does all of them mean? They are derivatives instruments
Forward: the derivative contract between two parties to buy or sell the underlying asset at a fixed predefined date and price.
Futures: similar to forwarding contracts but are consistent with specific price quantity and quality of the asset. The holder of this contract has the right and commitment to convey or obtain the underlying asset on the expiration of the contract.
Option: In this contract, the buyer has the right to implement the terms of the contract but is not indebted to do so before expiration.
Swap: In this two parties agree to swap cash flows or other financial instruments depending on the prices of the underlying instruments held by dealing parties.
5- Foreign exchange market
This simply means exchanging one currency in return for another. As the price of the currency can change any minute it remains active 24/7 all over the world and it’s the most important and largest financial market. It plays an important role in import and export from one country to another as well as buying any commodity.
Rowan Relton concludes that it must be kept in notice that financial markets involve huge risks especially when you use unregulated brokers. You should read all the terms and conditions carefully, do your research well and then step your foot inside the financial markets.