Scribd Logo
Upload

Welcome to Scribd!

  • 82 views

    Types of Financial Markets

    Uploaded by

    kate trisha
    There are several types of financial markets that facilitate trading of different financial instruments. The main markets include stock markets, where companies list shares that are subsequently traded among buyers and sellers; bond markets, where investors loan money to entities for a defined period at a set interest rate; money markets, which trade highly liquid short-term products with safety and low returns; derivatives markets, where contracts deriving value from underlying assets are traded; foreign exchange markets, the largest by volume, for trading currency pairs; and commodities markets, both physical markets and derivatives markets for raw materials. New cryptocurrency markets have also emerged for digital currencies like Bitcoin.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Types of Financial Markets

    Uploaded by

    kate trisha
    82 views3 pages
    There are several types of financial markets that facilitate trading of different financial instruments. The main markets include stock markets, where companies list shares that are subsequently traded among buyers and sellers; bond markets, where investors loan money to entities for a defined period at a set interest rate; money markets, which trade highly liquid short-term products with safety and low returns; derivatives markets, where contracts deriving value from underlying assets are traded; foreign exchange markets, the largest by volume, for trading currency pairs; and commodities markets, both physical markets and derivatives markets for raw materials. New cryptocurrency markets have also emerged for digital currencies like Bitcoin.

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    There are several types of financial markets that facilitate trading of different financial instruments. The main markets include stock markets, where companies list shares that are subsequently traded among buyers and sellers; bond markets, where investors loan money to entities for a defined period at a set interest rate; money markets, which trade highly liquid short-term products with safety and low returns; derivatives markets, where contracts deriving value from underlying assets are traded; foreign exchange markets, the largest by volume, for trading currency pairs; and commodities markets, both physical markets and derivatives markets for raw materials. New cryptocurrency markets have also emerged for digital currencies like Bitcoin.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    82 views3 pages

    Types of Financial Markets

    Uploaded by

    kate trisha
    There are several types of financial markets that facilitate trading of different financial instruments. The main markets include stock markets, where companies list shares that are subsequently traded among buyers and sellers; bond markets, where investors loan money to entities for a defined period at a set interest rate; money markets, which trade highly liquid short-term products with safety and low returns; derivatives markets, where contracts deriving value from underlying assets are traded; foreign exchange markets, the largest by volume, for trading currency pairs; and commodities markets, both physical markets and derivatives markets for raw materials. New cryptocurrency markets have also emerged for digital currencies like Bitcoin.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Types of Financial Markets

    Stock Markets
    Perhaps the most ubiquitous of financial markets are stock markets. These are
    venues where companies list their shares and they are bought and sold by
    traders and investors. Stock markets, or equities markets, are used by
    companies to raise capital via an initial public offering (IPO), with shares
    subsequently traded among various buyers and sellers in what is known as
    a secondary market.

    Stocks may be traded on listed exchanges, such as the New York Stock
    Exchange (NYSE) or Nasdaq, or else over-the-counter (OTC). Most trading in
    stocks is done via regulated exchanges, and these play an important role in the
    economy as both a gauge of the overall health in the economy as well as
    providing capital gains and dividend income to investors, including those with
    retirement accounts such as IRAs and 401(k) plans.

    Typical participants in a stock market include (both retail and institutional)


    investors and traders, as well as market makers (MMs) and specialists who
    maintain liquidity and provide two-sided markets. Brokers are third parties that
    facilitate trades between buyers and sellers but who do not take an actual
    position in a stock.

    Over-the-Counter Markets
    An over-the-counter (OTC) market is a decentralized market—meaning it does
    not have physical locations, and trading is conducted electronically—in which
    market participants trade securities directly between two parties without a broker.
    While OTC markets may handle trading in certain stocks (e.g., smaller or riskier
    companies that do not meet the listing criteria of exchanges), most stock trading
    is done via exchanges. Certain derivatives markets, however, are exclusively
    OTC, and so make up an important segment of the financial markets. Broadly
    speaking, OTC markets and the transactions that occur on them are far less
    regulated, less liquid, and more opaque.

    Bond Markets
    A bond is a security in which an investor loans money for a defined period at a
    pre-established interest rate. You may think of a bond as an agreement between
    the lender and borrower that contains the details of the loan and its payments.
    Bonds are issued by corporations as well as by municipalities, states, and
    sovereign governments to finance projects and operations. The bond market
    sells securities such as notes and bills issued by the United States Treasury, for
    example. The bond market also is called the debt, credit, or fixed-income market.

    Money Markets
    Typically the money markets trade in products with highly liquid short-term
    maturities (of less than one year) and are characterized by a high degree of
    safety and a relatively low return in interest. At the wholesale level, the money
    markets involve large-volume trades between institutions and traders. At the
    retail level, they include money market mutual funds bought by individual
    investors and money market accounts opened by bank customers. Individuals
    may also invest in the money markets by buying short-term certificates of
    deposit (CDs), municipal notes, or U.S. Treasury bills, among other examples.

    Derivatives Markets
    A derivative is a contract between two or more parties whose value is based on
    an agreed-upon underlying financial asset (like a security) or set of assets (like
    an index). Derivatives are secondary securities whose value is solely derived
    from the value of the primary security that they are linked to. In and of itself a
    derivative is worthless. Rather than trading stocks directly, a derivatives market
    trades in futures and options contracts, and other advanced financial products,
    that derive their value from underlying instruments like bonds, commodities,
    currencies, interest rates, market indexes, and stocks. 

    Futures markets are where futures contracts are listed and traded. Unlike
    forwards, which trade OTC, futures markets utilize standardized contract
    specifications, are well-regulated, and utilize clearinghouses to settle and confirm
    trades. Options markets, such as the Chicago Board Options Exchange (CBOE),
    similarly list and regulate options contracts. Both futures and options exchanges
    may list contracts on various asset classes, such as equities, fixed-income
    securities, commodities, and so on.

    Forex Market
    The forex (foreign exchange) market is the market in which participants can buy,
    sell, hedge, and speculate on the exchange rates between currency pairs. The
    forex market is the most liquid market in the world, as cash is the most liquid of
    assets. The currency market handles more than $5 trillion in daily transactions,
    which is more than the futures and equity markets combined. As with the OTC
    markets, the forex market is also decentralized and consists of a global network
    of computers and brokers from around the world. The forex market is made up of
    banks, commercial companies, central banks, investment
    management firms, hedge funds, and retail forex brokers and investors. 

    Commodities Markets
    Commodities markets are venues where producers and consumers meet to
    exchange physical commodities such as agricultural products (e.g., corn,
    livestock, soybeans), energy products (oil, gas, carbon credits), precious metals
    (gold, silver, platinum), or "soft" commodities (such as cotton, coffee, and sugar).
    These are known as spot commodity markets, where physical goods are
    exchanged for money.

    The bulk of trading in these commodities, however, takes place on derivatives


    markets that utilize spot commodities as the underlying assets. Forwards,
    futures, and options on commodities are exchanged both OTC and on
    listed exchanges around the world such as the Chicago Mercantile
    Exchange (CME) and the Intercontinental Exchange (ICE).

    Cryptocurrency Markets
    The past several years have seen the introduction and rise
    of cryptocurrencies such as Bitcoin and Ethereum, decentralized digital assets
    that are based on blockchain technology. Today, hundreds of cryptocurrency
    tokens are available and trade globally across a patchwork of independent
    online crypto exchanges. These exchanges host digital wallets for traders to
    swap one cryptocurrency for another, or for fiat monies such as dollars or euros.

    Because the majority of crypto exchanges are centralized platforms, users are


    susceptible to hacks or fraud. Decentralized exchanges are also available that
    operate without any central authority. These exchanges allow direct peer-to-peer
    (P2P) trading of digital currencies without the need for an actual exchange
    authority to facilitate the transactions. Futures and options trading are also
    available on major cryptocurrencies.

    You might also like