If you have any questions or suggestions you are welcome to join our forum discussion about Types of Financial Markets. A financial market is a market in which people and entities can trade financial securities, commodities and other fungible assets at prices that are determined by pure supply and demand principles. Markets work by placing the two counterparts, buyers and sellers, at one place so they can forex factory interactive trading each other easily, thus facilitating the deal between them.
Financial markets may be viewed as channels through which flow loanable funds directed from a supplier who has an excess of assets toward a demander who experiences a deficit of funds. There are different types of financial markets and their characterization depends on the properties of the financial claims being traded and the needs of the different market participants. We recognize several types of markets, which vary based on the type of the instruments traded and their maturity. Capital market The capital market aids raising of capital on a long-term basis, generally over 1 year. When a private company decides to become a publicly-traded entity, it issues and sells its stocks at a so-called Initial Public Offering. It includes the NYSE, Nasdaq and all other major exchanges.
Some previously issued stocks however are not listed on an exchange, rather traded directly between dealers over the telephone or by computer. In general, companies which are traded this way usually don’t meet the requirements for listing on an exchange. Money market The money market enables economic units to manage their liquidity positions through lending and borrowing short-term loans, generally under 1 year. Retail investors and smaller trading parties do not participate on the Interbank market. Such loans are made at the Interbank rate, which is the rate of interest, charged on short-term loans between banks. An intermediary between the counterparts, called a dealer, announces a bid and an offer rate with the difference between the two representing a spread, or the dealer’s income. Commodity market The commodity market manages the trading in primary products which takes place in about 50 major commodity markets where entirely financial transactions increasingly outstrip physical purchases which are to be delivered.
Commodities are commonly classified in two subgroups. Hard commodities are raw materials typically mined, such as gold, oil, rubber, iron ore etc. Soft commodities are typically grown agricultural primary products such as wheat, cotton, coffee, sugar etc. Exchange-traded derivatives These are standardized contracts traded on an organized futures exchange. They include futures, call options and put options.
Over-the-counter derivatives Those contracts that are privately negotiated and traded directly between the two counterparts, without using the services of an intermediary like an exchange. Securities such as forwards, swaps, forward rate agreements, credit derivatives, exotic options and other exotic derivatives are almost always traded this way. Insurance market It helps in relocating various risks. Insurance is used to transfer the risk of a loss from one entity to another in exchange for a payment.
The insurance market is a place where two peers, an insurer and the insured, or the so-called policyholder, meet in order to strike a deal primarily used by the client to hedge against the risk of an uncertain loss. Why Using an Economic Calendar is Important? What to Look for in a Trading Platform? How to Choose the Right Leverage? Founded in 2013, Binary Tribune aims at providing its readers accurate and actual financial news coverage.
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