Ultimate Guide To Learning Financial Markets6 mins - Introduction
Financial Markets have become prevalent in today’s world. They act as platforms that allow various transactions to occur, such as the purchase or sale of stocks, assets, bonds, and various goods and services. The need for financial markets has emerged greatly in today’s world where everything relies based on conducting trade. They are, therefore, practical solutions in a world where the demand for various goods and services is growing at a faster pace. Financial Markets allow the transaction of various goods to take place in an efficient manner whereby two or more parties are equally satisfied. It assists individuals, companies, as well as the government to raise money quickly.
Financial Markets have grown large, and that too pretty quickly, since it has become more convenient for other people to gain access to them. Rather than entertaining major banks, finance houses, and rich people, they have expanded to everyone, even people earning average wages.
Types of Financial Markets
Traders all around the Globe are open to the concept of financial markets. Here are some of the most prominent types of financial markets in the World.
Indices allow different traders around the world to trade collective stocks like they are individual stocks. Since traders can purchase or sell these collective stocks, it allows them to predict the price changes amongst companies with the biggest market shares within a specific market. Take the US 500 as an example of an index that is traded around the world more commonly.
Currency markets are important in that they allow various banks and participants within a market to trade various currencies one after the other. Different currencies are known as ‘currencies pair’ where two different currencies have an established relationship with one another. For instance, the GBP/USD displays the relationship between the US dollar and the pound. Three letters indicate currencies all around the world. Since currencies operate at a global level, you can carry out trade with them at any time of the day.
Equities consist of various renowned companies all over the world along with the price of their shares. They are an example of a share market. Anyone can purchase or sell these shares if need be. For instance, Apple and Microsoft are well-known Companies that have market shares present.
Goods and Services
Goods and Services consist of the basic commodities that are typically purchased and sold by all consumers. Decent examples would include an energy source, such as oil, gas, etc. Other than that, your commodities would include ‘soft goods’ like wheat, beans, barley, or even various minerals, such as gold, copper, etc.
Bonds act like instruments of debt. Bonds are issued by the Government whereby interest is given to various investors. You can also trade bonds. Some famous markets for bonds include the UK and the US.
Interest rates indicate the cost of borrowing amongst two participants. The central bank is responsible for setting an interest rate whereby people lend or issue money to other parties or individuals. They tend to fluctuate considering the nature of the market. The UK and USA’s interest rates are exchanged a lot.
Factors Affecting Financial Markets
The equilibrium driven out of the aggregate demand and supply is what determines the price of a certain commodity. However, several other factors can push the prices of various goods and services up or down.
Many people participating in financial markets keep tracking the news regarding those markets. For instance, several political issues could instigate changes of price within companies, causing changes in the market values as well. Speculation is, therefore, a vital aspect of the financial market.
Central banks are responsible for setting various policies, which include setting an interest rate, etc. These policies directly control the circulation of money and therefore, affect the market greatly.
The performance of companies
The results of various companies that are listed within the stock market act as an indication for market participants to buy or sell a share.
The release of Data by the Government
The information released by the government is vital for markets to function since it determines macro-economic principles such as inflation and employment.
How do financial markets function?
You can trade in financial markets in two ways: on-exchange trading and over the counter trading. On-exchange trading has been a historical form of trading whereby people used to visit actual buildings to purchase or sell stocks with commodities such as corn, wheat, etc. Nowadays, the exchange of stocks takes place over the internet, with participants from all around the world. Over the counter trading is the most common type where two parties are involved in the transactional process.
Who is involved in Financial Markets?
The participants of financial markets range from individuals to big companies. Here are the participants of the financial market.
Banks play a vital role in the financial markets as they provide funding to various companies and act as brokers. Along with that, banks are also involved in trading themselves. However, now their role in the transactional aspect has decreased significantly.
Various types of investors are involved in Financial Markets; for instance, pension funds or mutual fund providers are an integral part of the financial market. Retail investors are part of the market by investing in the funds or purchasing various shares. They are also an active part of the trading process.
Brokers are a vital part of the financial market. They are responsible as they are the ones conducting the trading process for their clients.
It is the duty of a few institutions for the sale of shares as well as bonds within a market. It is their job to ensure that their clients get to purchase or sell bonds and shares with ideal price levels.
Financial Markets have become an important part of our lives. Individuals along with major companies operate under the principles of financial markets without which a decent way of conducting transactions cannot take place.