Maybe you want to grow your money. It’s hard to see that happening if you keep them in a jar or a drawer where thieves can steal them. So, you resort to the financial markets.
But what are financial markets? What are its different types? In this article, we’ll give you a quick introduction to the financial markets and its different types.
What are Financial Markets?
As the name suggests, financial markets are marketplaces where you can buy or sell different assets. Such assets include bonds, stocks, currencies, and even contracts.
These markets go by different nicknames and monikers, like “capital markets” and “Wall Street.” However, all of them simply refer to the marketplace of assets.
The main purpose of the financial markets is to let investors grow their money. They do that by also growing their businesses or the value of the assets they hold.
Types of Financial Markets
Different countries have their very own financial markets. Some of these markets are unique to the home country, while others encompass borders. However, they all fall under broad types of financial markets, which we discuss in the following.
Stock or Equity Market
The stock market is where investors trade shares of public companies. Each share holds price and investors can make money when the company’s stock performs well in the market.
Nowadays, it’s very easy to invest in stocks. That is, to buy and sell them. Online brokerages have popped up, each offering features for traders to buy and sell shares.
Bond or Fixed-Income Market
The bond market also has to do with the corporate world, but it also closely connects with the government.
This is where companies and the government secure money to fund a project or investment. An investor basically buys bonds from the issuing entity, which returns the amount within a specific period of time and with interest.
The commodities market lets traders and investors buy and sell natural resources or commodities, which include oil, meat, corn, and gold.
Since the price of these commodities can be unpredictable, a specific market (or perhaps a ‘sub-market’) exists for each resource.
The derivatives market is where traders and investors exchange derivative contracts. These contracts have values derived from the value of the underlying asset.
The underlying asset, meanwhile, can be stocks, currencies, commodities, or others. These contracts allow for much flexibility on the trader’s part.
As the name suggests, the currency market is where traders can buy and sell different currencies. These currencies come in pairs, with one currency as the base and the other as the quote.
For instance, when you buy the USDJPY pair, you’re not only dealing with the US dollar. You’re also dealing with the Japanese yen.
In that example, you’re basically buying US dollars while selling Japanese, so that the strength of one currency depends on the weakness in the other.
These are the biggest, most popular, and most lucrative financial markets in the world. Investing in these markets requires specific set of knowledge and skills.
Fortunately, the advent of technology and online brokers has made it easier even for the ordinary person to try and grow his money through the financial markets.