Types of financial markets and their description

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financial markets

Introduction

The financial market is related to the money in which all types of trading under the market like the stocks, forex, commodity, derivatives, spot, and capital market. In simple words, the financial market is where the buyers and sellers open to trade in financial institutions. The financial market helps boost the world’s economy through international trade, demand, and supply. 

What are the financial markets?

The finance market is where the securities exchange occurs, as the forex market, stock market, derivative market, and bond market. The financial market plays a significant role in the economy of the market.  

How many types of financial markets?

There are six types of the financial market are:

  1. Capital market – The capital market is where the buyers and sellers exchange stocks, bonds, etc. The capital market where all the securities are bought and sold like the preference share, equity share, bonds, debentures, etc. The capital market have 2 types of market are:
  1. Primary market – In the primary market, the company declared the share for the public in the form of IPO (Initial public offering), Qualified institutional placement, Preferential issue, Rights issue and bonus issue, etc. 
  2. Secondary market – The secondary market where the investor directly buys and sells the share of the company from the public on the market cost of the share.

Advantages of capital market

  1. Choosing the investment wisely.
  2. Helps to understand the risk and effects
  3. Decision making in investment opportunities
  4.   Money market – The money market in which the financial institution and companies are included, the money market is where the purchase of the large volume of the (short debt) products, like the hold for the overnight.  

Advantages of money market

  1. Higher interest rates
  2. Accessibility 
  3. Safe investment 

Foreign exchange market

Forex trading is also known as Forex exchange or FX trading. In simple words, the exchange of one currency against another currency. The forex exchange is for a variety of reasons like tourism, commerce, and trading. The currency price increases in the trading market, known as going long, and the price of currency decreasing in the trading market is known as short. Every day the transaction of individuals, companies, and banks is around $6.6trillion, which is huge. The forex market is run globally, the major 4 centres located in Sydney, New York, Tokyo, and London. There is no centralized location for forex trading; you can trade 24 hours a day.

Advantage of foreign exchange market

  1. Opportunities of profit are more in forex trading, allowing the traders to take the position in currency going up & down.
  2. The leverage trading in which the full amount of trading is not necessary to trade the initial amount of margin is required. This has to magnify the profits and the losses potentially.
  3. The transaction cost is very low; the broker makes money on the spread the trade is opened and closed any overnight funding charges are applied

Commodity market

The commodity market is the place where the selling, buying, and trading of the raw material of the primary products. The commodity market involves coffee, gold, and hard commodities like natural resources, agricultural stocks, and livelihood. (soft commodities).

Advantages of commodity market

  1. Find the price
  2. Diversification
  3. Hedging
  4. Export-Import competitiveness

Spot market –

The spot market is the place where the commodities or securities market in which the foreign exchange is bought and sold, and delivered immediately. The exchange that prevails in the spot market for foreign exchange is called the “spot rate.” 

Advantages of spot market

  1. Buyers and sellers both have a lot of benefits from the spot market. 
  2. The conflict between both the parties regarding the price by the buyers and after offering the best price for the buyers and sellers. 
  3. Derivatives market – The derivatives market is the financial marketplace where financial instruments such as options and futures are traded. There are four types of derivatives market: speculators, hedgers, margin traders, and arbitrageurs.   

Advantages of the derivatives market

  1. Risk of hedging
  2. The efficiency of the market

What are the functions of the financial markets?

  1. Places reserve funds for more gainful use – A bank account that has cash in it should not recently let that cash sit in the vault. Along these lines, business sectors like banks free it up to people and organizations that need a student loan, business loan, and home loan. 
  2. Decides the cost of protections – Financial markets intend to make benefits from their protections. In any case, not at all like merchandise and enterprises whose cost is controlled by the demand and supply and the price of securities decided by the financial markets. 
  3. Makes investments resources fluid – Buyers and Sellers can choose to exchange their protections whenever. They can utilize financial business sectors to sell their protections or make speculations as they want. 
  4. Transaction cost is low – In the financial market, the securities’ information is acquired without spending the money. 

What is the role and importance of the financial system in economic development?

The banking sector plays an important role in the modern economic world. The financial market helps to develop the economic growth of the country. 

  1. The benefit of the government.
  2. Economic development 
  3. Economic growth
  4. Maximize returns 
  5. Promoted investments 
  6. Minimize risk 
  7. Promotion of foreign and domestic trade. 
  8. Vibrant capital market. 
  9. Expand activities from financial markets.
  10. Industrial development  

What are the benefits of the financial market?

Gives Payment System: The financial framework provides an installment with the component to the smooth progression of assets among people groups in an economy. With the finance system’s help, the buyers and sellers can make a transaction of goods and services with each other.

Connections between Savers and Investors: The financial system serves to overcome any issues among savers and investors. 

Risk: It targets lessening the danger by differentiating it among countless people. The financial system appropriates assets among an enormous number of people groups because numerous people groups share the risk. 

Helps in Capital Formation: The financial system has a proficient part in the country’s capital arrangement. It empowers large corporates and businesses to secure the necessary assets for performing or growing their tasks in this way, prompting capital arrangement in the country. 

Upgrade liquidity: Maintaining ideal liquidity in an economy is another significant pretended by the financial system. It offers free development of assets from families (savers) to corporates (financial backers) which guarantees adequate accessibility of assets in the economy. 

Forex trading is also known as Forex exchange or FX trading. In simple words, the exchange of one currency against another currency. The forex exchange is for a variety of reasons like tourism, commerce, and trading. The currency price increases in the trading market, known as going long, and the price of currency decreasing in the trading market is known as short. Every day the transaction of individuals, companies, and banks is around $6.6trillion, which is huge. The forex market is run globally, the major 4 centres located in Sydney, New York, Tokyo, and London. There is no centralized location for forex trading; you can trade 24 hours a day

What are the drawbacks of the financial markets?

Absence of Coordination among monetary organizations: The financial system faces an absence of coordination among different financial foundations. The presence of countless financial establishments and government parts in controlling authority of these institutions prompts an absence of coordination. 

Monopolistic Market Structure: Many organizations in the world financial system involve a monopolistic situation on the lookout. 

High Rate of Interest: There is a chance of the great loan fee charged by a few several institutions in our country’s financial arrangement. Because of their monopolistic design in the market, different institutions may charge high or unfair interest rates. 

Financial Practice: The world’s financial system arrangement has created incautious financial practices because of advanced banks’ predominance. Improvement banks give assets to corporates as term advances which makes the capital design of acquired concerns lopsided. These banks even license the utilization of unwarranted debts, 

which is against the sound capital stru in cture.

Which is the best broker in the financial markets?

 ROinvesting is the comparatively best broker in trading, and Roinvesting offering extraordinary benefits and features for trade. If you need information about the broker, you can check the website of the broker. Roinvesting is a well-regulated broker and authorized by the Cyrus Securities and Exchange Commission (CySEC). The foundation of ROinvesting in 2015 and Roinvesting is a reputed member of the Investor Compensation Fund. The broker provides the 200+ CFDs on the assets like cryptocurrencies, commodities, forex, indices, and stocks and the provide the Metatrader 4 trading platform for the desktop, mobile, and web. Roinvesting offers three different types of trading account silver, gold, and platinum.  The Roinvesting is the top-rated broker nowadays because it gives the best services to the investor. Roinvesting provides the best knowledge about the market to the investor to make a good opportunity to trade.

Conclusion 

The financial market is the biggest market in the world. The international relationship between the countries depends upon the financial market. The financial market is the institution which can provide all the facility about the financial securities. The financial system plays an efficient role in minimizing the risk for a large number of investors. The economy will suffer if the financial market is restricted all over the world. 

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