Types of Financial Markets and Their Roles

A financial market is a broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies, and derivatives. These markets are defined by having transparent pricing, basic regulations on trading, costs and     fees. The market forces determine the prices of securities that are in trade. Financial market is found in every nation of the world. Some are very small, with only few participants, while others are like the New York Stock Exchange (NYSE) and the FOREX markets – trade trillions of dollars daily.

Types of Financial Markets

Investors have access to a large number of financial markets and exchanges with a vast array of financial products. Some of these markets have always been open to private investors; others remained the exclusive domain of major international banks and financial professional like the way ETX Capital, which plays a vital role in the UK capital market for spread betting. Shares, bonds, commodities and other alternatives are usually traded in spread betting.

Types of Markets:

Capital Market: is the one where individuals and institutions trade financial securities. Organizations and institutions in the public and private sectors also sell securities in the capital markets in order to raise funds. This type of market is composed of both the primary and secondary markets. A company raises money through the sale of securities – stocks and bonds in the company’s name.

Stock Market: allows investors to buy and sell shares in publicly traded companies. They are one of the most vital areas of a market economy as they provide companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company’s future performance.

Bond Markets: is a debt investment in which an investor lends money to an entity (corporate or governmental), which borrows the funds for a defined period at a fixed interest rate. Companies to finance a variety of projects and activities use these.

Money Market: is a segment of the financial market where financial instruments with high liquidity and very short maturities are traded for. This market is used as a means for borrowing and lending in the short term, from several days to just under a year.

Cash or Spot Market: is highly sophisticated, with opportunities for both big losses and big gains. Contracts are bought and sold on the spot . Prices are settled in cash “on the spot” at current market prices. This is notably different from other markets, in which trades are determined at forward prices.

Derivates Market:  A derivative is a contract and the contract price is the market price of the core asset.

FOREX and Interbank Market : The interbank market is the financial system where trading of currencies among banks and financial institutions is done. Trading is performed by banks on behalf of large customers.

In FOREX market currencies are traded over the counter, there is no central marketplace. It is the largest, most liquid market in the world.