Financial markets, broadly speaking, are any place where governments and organizations can go to obtain financing, or traders can buy and sell [financial instruments]. The financial markets play a pivotal role in a country’s economic health, allowing governments and companies to access funding for growth and social policies for over 100 years.
Governments and companies tend to access finance via the bond markets and the stock markets, whereas traders operate within the foreign exchange, or forex, commodities, and derivatives markets.
Bond markets are where investors go to lend sums of money to governments and companies for a pre-determined length of time, at a pre-determined interest rate.
The stock market, probably the most famous of markets, is where companies will go to sell portions of the company’s ownership in order to generate income for the business.
Traders and investors traditionally bought and sold financial instruments via the telephone, initiated through a broker. However, since the advent of the internet, it has become increasingly common that traders can place orders into the market directly via an online digital platform.
The foreign exchange market is the largest of the financial markets with an average daily turnover of more than five trillion us dollars. This is where traders go to buy and sell currency, making their profits by capitalizing on fluctuations in the exchange rate.
Similarly, traders seek to generate profits from the buying and selling of commodities such as gold and oil, buying when prices fall, and selling as prices rise.
Another common activity for traders is speculating on the fluctuations of prices of assets like stocks, bonds, commodities, and market indices via the derivatives market.
Key takeaways:
- Governments, companies, and traders go to the financial markets to generate funds
- There are many types of markets, the most common being stocks, bonds, commodities, forex, and derivatives
- Each market has its own pros and cons, influencing factors, and [strategies] for operating successfully