A financial market is basically a market where individuals trade derivatives and financial securities at discount rates. Some of these securities included bonds and stocks, metals, and gemstones, which are also recognized in the financial markets as assets. The buying and selling of these assets are done at a price level that is determined by supply and demand. These assets can be traded in different markets like equity markets and commodity markets. Derivatives are financial tools that are used by individuals or entities to manipulate or alter the underlying securities and assets.
The most widely traded financial market is the bond market. It is the largest financial market in the world. There are two types of bond markets namely primary and secondary markets. The primary market deals with government bonds and is also referred to as Federal bonds. While the secondary market deals with corporate bonds and is also known as corporate bonds.
The other financial market includes the foreign exchange or Forex market. In the Forex market, traders buy and sell currencies from all over the world. In the case of Forex, the traders buy currency when it is falling and try to sell them when it is rising. Similarly, the bond market is also traded in the form of bonds between different entities. These bonds are issued by different entities like corporations, public authorities, municipalities, and individual citizens.
The Top Markets
The various financial markets include two major categories named after their respective rates like Commodity and Term Portfolio. Commodity financial markets are those traded on stock exchanges like NYSE, NASDAQ, London Stock Exchange, and Paris Stocks Exchange. On the other hand, Term Portfolio financial markets are those traded on futures exchanges like NYSE, NASDAQ, and London Stock Exchange. These exchanges allow traders to buy or sell a specific time-frame; most commonly a day, a week, or a month.
Another category of financial market is bonds and note market. Bonds are sold for collecting the principal amount. Typically, bonds are issued by governmental organizations like state, municipal, credit card, factory, mining, and power companies. Meanwhile, the note market deals with issuing debt securities such as commercial paper, corporate debt securities, debt obligations of complex financial structures, and banknotes. Long-term funding is actually provided by debt securities.
There are mainly two main classes of derivatives markets: equity derivatives and credit derivatives. Equity derivatives refer to the derivative instruments that are based on the value of certain underlying shares or securities. This is an easy way of borrowing money but comes at a high price when the risk of the situation turns out bad. Credit derivative instruments are financial instruments that make use of credit systems. These instruments are traded on credit markets and are usually created to compensate for the risk of default.