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Introduction - Types Of Financial Markets and Their Roles

A financial market is a term referring to any marketplace where buyers and sellers exchange (buy and sell) different market assets such as equities, bonds, currencies and derivatives. The activity on the financial markets is guided by several principles which includes transparent pricing, authorization of regulatory authorities and intervention of market forces which determine the prices of securities that are exchanged.

Financial markets exist in nearly every nation in the world. Some are very small and prices are determined by only few participants while others – like the New York Stock Exchange (NYSE) and the forex markets- reach trading volumes of trillion of dollars daily. Investors have access to a large number of financial markets and exchanges offering a vast variety of products to trade. Some markets retain the exclusivity to private investors while others had been available only to big financial institutions and big private investors until the very end of the twentieth century.


Capital Markets

A capital market is where institutions or private investors exchange financial securities. Many organizations issue securities on the capital markets in order to raise funds necessary to finance corporate budget. Capital market is composed of primary and secondary markets

 Organizations and institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets.

Stock Markets

Stock markets allow investors to buy and sell shares in publicly traded companies. They are one of the most vital areas of a market economy as they provide companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance.

This market can be split into two main sections: the primary market and the secondary market. The primary market is where new issues are first offered, with any subsequent trading going on in the secondary market.

Commodity (Cash or Spot Market)

Commodity market is a physical or virtual marketplace where commodities are exchanged. The core of the market is comprised of around 50 markets (commodity exchanges) where around 100 commodities are offered for investment purposes.

Commodities are generally classified into 2 types – HARD and SOFT commodities.  Hard commodities usually fit into the description of natural resources deposited beneath the earth surface such as Oil and Gold whereas soft commodities are agricultural resources and livestock (corn, wheat, sugar, coffee, pork, etc.)

There are numerous ways to invest in commodities. The most direct way of investing in commodities is by buying into a futures contract or a CFD contract through cash settlement.

Forex Market

The forex Market is the place where currencies are traded. Being the largest and liquid financial market in the world with volumes reaching up to 2 trillion USD daily, forex market has been the most attractive spot for investors over the course of the last years due to its relative simplicity and accessibility. Any person, firm or country may participate in this market and nearly all currencies are traded there.

Trading on the forex marker it not restricted to a particular marketplace. It is open 24/5 and most of the trading volume is distributed over major financial centers of London, New York, Singapore and other big financial megapolices.

It was not until the end of the 20-th century that FX market became accessible to general public. Boosted by the fast growth of internet and the emergence of retail brokers, trading on the FX market became possible with a single mouse click.


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