What are financial markets?

What are financial markets?

An overview of the financial markets by defining the money market and what it contains financial tools for trading in investment, showing their types and differences, and how to analyze their movements and benefit from financial market derivatives.

Financial markets broadly cross into any market in which securities are traded, including the stock market, bond market, forex market, derivatives market, and others. Financial markets are vital to the functioning of commodities in capitalist economies.

The concept of financial markets

The definition of financial markets is not much different from the market concept as we know it, so the financial markets express the place or entity where the buyer and seller meet to carry out a transaction or a trade. He has the desire and the price to obtain this commodity, so he submits a purchase order, in which case the commodity is the security, and the role of the financial market, in this case, is to facilitate the process of buying or selling the security. The guarantee may be shares, bonds, commercial papers, and others.

Thus, we can say a definition of the financial market as a place or entity in which offers and requests for securities trading are available and this is done in a regulated and central market and through a unique platform such as the stock market or in an unregulated market. We call it trading here outside the platform or what is known as OTC. The stock market is an asset market, of all kinds and forms, that is negotiable, and the ownership of the commodity or financial asset is not always assumed for trading, but rather it is a financial instrument prepared for trading by special rules and controls.

The function and importance of financial markets

The importance of the role played by investment finance investing stock market lies in providing cash and liquidity for various commercial and economic activities and transferring the funds that were saved after consumer spending on basic living commodities and employing them in various investment channels by directing them to the sectors that need them.

The market plays this role by what is done in it. Financial operations, starting with issuing securities and offering them to the public for subscription, then trading them, selling offers or purchase orders.

Types of financial markets

Financial markets are classified according to the amount of trading strategies available. The following are the most important and well-known forms of financial markets:

The capital markets: Stock market, bond market 

the most popular is divided into the stock market and the bond market:

The difference between a stock and a bond is that the two are securities, which means that the stock is part of the company's capital, and the bond is part of the debt owed by the company. That is, the share represents a share in the capital of the company, and the shares are of equal value, indivisible by their owner, and negotiable by commercial means. A bond is a tradable financial instrument. This instrument proves that the holder has loaned a specified amount to the company, and guarantees the holder the right to claim the loan amount in addition to the interest accrued under its term.

The foreign exchange market or what is known as forex

The foreign exchange market, often known as the currency market or forex market, is the largest financial market in terms of trade volume and liquidity. By exchanging one currency for another, buying low-cost currencies, and selling high-cost ones.

Commodity Markets

One of the oldest financial markets, the sale of agricultural crops was one of the oldest forms of commodity trading on the ancient stock exchanges. In this market, major commodities such as wheat, sugar, cocoa, gold, and oil are traded in the form of contracts, or through price options contracts.

Cryptocurrency Markets

It is a fairly new market, which appeared with the advent of cryptocurrencies, as this market enabled traders to trade new digital currencies where regular currencies are traded, and it was also called the crypto-asset market, where its transactions and transfers are recorded in a special register that operates through a network blockchain.

financial market derivatives

Derivatives markets are contracts that derive their value from the value of the same assets through an underlying contract that allows the same asset to be traded in different ways to make gains depending on the price fluctuations of that asset. Financial derivatives are available in all financial markets, stocks, bonds, currencies, or commodities, and their objective is to reduce the risk of price changes.

Derivatives are divided into:

spot market:

It is the market in which the financial asset is trading during the day at the current price, even if the time to execute the transaction takes several minutes - or more than a moment - this is considered instant as it was executed at the current price.

Futures

It is a contract concluded between two parties to agree to buy or sell a specific financial asset to be executed at a specific date in the future at its current price, either intending to achieve greater returns as a result of expectations. A price increase in the future, or to reduce the risk of future price fluctuations on this financial asset.

futures contracts

Commitment contracts for both parties to trade the financial instrument at a future date and do not differ much from future contracts in the way they work, the difference is that they are not made in random quantities, but with legal standard contracts regulated by regulators.

options contracts

An option contract is a contract that gives the holder the right, but not the obligation, to buy or sell a financial asset of any kind during a specified period, provided that the buyer pays an initial deposit to the seller to obtain this right, so the contract is optional for the buyer - either he buys or he executes Or withdraw and lose the deposit - it is the seller's obligation to perform if the buyer fulfills the terms of the contract at the time of execution.

Investing in stock

Many people resort to investing in securities to increase income and wealth and to keep money from shortages caused by inflation and other factors. The objective of investing, in general, is to achieve returns or profits as a result of the process of trading or investing, whether in the short, medium or long term, depending on the investor's future view of the traded asset.

Investors in the financial markets can get returns through two things:

First: Returns from the current asset

In the stock market, gains from the shares owned can be made through dividends which the shareholder receives as a contributing partner in the profitability of the company.

Second: From the price movement of the traded asset

In the currency market (forex market), an investor or currency speculator can make profits from buying currencies at a low price, holding them for a period and then selling them at a higher price to make a profit, or trading them by speculating on prices using leverage and margin, which helps him achieve greater returns. by trading. Relatively smaller capital in less time.

Anyone, whatever the capital, can invest in any of the financial markets through brokerage firms after learning how to analyze the financial markets.

Financial Market Analysis

Before trading in the financial markets, you must have the ability to anticipate their future price trends, as the success of your trades is predicted by the degree of your success in predicting price movements, and here comes the role of the analysis.

General analysis means studying current and historical data to try to predict the direction of that data in the future. When this concept applies to financial markets, the data available is either price data or financial and economic data depending on the financial asset to be analyzed.

With different types of analysis and their complexity, there are two main ones:

Technical Analysis

It is the study of price movement or historical and current price data on charts, intending to predict future price trends without taking into account the reasons for that movement. To enter into a sell position.

Fundamental, economic or financial analysis

It is the study of the economic, political, or financial factors of the state or the company - based on the traded financial asset - and the determination of the factors that affect the supply and demand forces that move the prices of this asset to update the positive or negative from this effect, which in turn determines the direction of the prices of the financial asset.

To get started in forex trading, visit our article on what is forex?. For more advanced traders, visit our article on Top 7 Steps To Learn Successful Trading.