When a new trader starts, they have to choose what market they want to trade-in. Even though most traders just start trading in the first market they come across, it is advantageous to analyze the characteristics of different types of individual financial markets and choose what fits their objectives and goals the best.
Financial markets are marketplaces where trading of financial securities and derivatives occurs. There are a lot of financial trading markets where you can trade forex, stocks, bonds, commodities, etc. Financial markets are essential for the smooth operation of capitalist economies.
For example, let’s take a bank where an individual has a savings account. The bank can use the money in their savings account and money of other depositors to provide a loan to other individuals and charge an interest fee on that loan. Therefore, the bank serves as a financial market. In financial markets, buyers and sellers can trade financial instruments like bonds, equities, currencies, or derivatives.
TYPES OF FINANCIAL MARKETS:
- Stock Market:
The Stock market is probably the universal financial market. The stock market is most likely the first thing people hear about when they develop an interest in financial markets and trading.
Companies list their stock on the stock markets so that investors and traders can buy and sell them. The main participants in a stock market are investors, traders, market makers, and people who maintain the liquidity and provide two-sided markets.
Some Features of Stock Market:
- Stock markets are usually open from 9 to 5.
- It has limited leverage.
- Short selling is restricted.
- Sometimes, liquidity can be low, especially when trading unpopular stocks.
- Forex Market:
The foreign exchange (or FX or Currency trading) market is the marketplace where corporations, banks, governments, and speculators exchange currencies. Forex trading is beneficial for an individual who can understand the market and make decisions accordingly.
Some Features Of Forex Market:
- You can trade forex at any time of the day as it remains open 24 hours a day for 5 days a week.
- The size and scale of the forex market are some of its key benefits.
- The forex market has high liquidity.
- The initial level entering cost is low. Therefore, it is beginner-friendly.
- The forex market has high volatility.
- Short selling is easily possible.
- Commodity Market:
The commodity market is a marketplace where producers and consumers trade hard and soft commodities. Natural resources that have to be acquired through extraction or mining are hard commodities. The ones that are part of livestock or agricultural commodities are soft commodities. Engaging in the commodity market can diversify your asset portfolio.
- Bond Market:
A bond market is also called a debit, credit, or fixed-income market. In the bond market, investors buy debt securities introduced by corporations, municipalities, states, and sovereign governments. These proceeds are usually used to finance improvements in infrastructure and pay debts by the national governments.
A bond can be seen as an agreement between the lender and the borrower. It contains the details of the loan along with its pre-established interest rate.
There are different types of bond markets like corporate bonds, municipal bonds, government bonds, mortgage-backed bonds (MBS), or emerging market bonds.
Some Features Of Bond Markets:
- They are comparatively less risky and less volatile than stock markets.
- Lower risk usually translates to lower returns.
- The corporate and government bond markets are one of the most liquid markets in the world.
- In the event of bankruptcy, bondholders have higher priority than shareholders.
ADVANTAGES OF FINANCIAL MARKETS:
- Companies can raise money for both the long term and short term.
- An individual can deal with multiple shares, bonds, derivatives, or securities at a time.
- It provides a platform where inter-currency money lending and borrowing can occur.
- Investors and debaters will receive fair and proper treatment regardless of their share in financial markets.
- The financial market has helped lower the unemployment rate because of the many job opportunities.