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What is financial market and types of financial markets

Financial Markets

Financial Market are you confused with this term, Then you don't need to, As financial market go by many terms including capital market, wall street , dalal street , even the markets, some people simply say its a stock market, but they actually referring to , stock, shares, bonds and commodity.

It is quite simple type of financial transaction that help you business grow and make profit for you is financial market , that is in simple terms.

Suggested reading - Click link to see free stock tips.


In brief Financial market is a place where two people are involved in transaction of goods and services in exchange of money

The two people involved are:

  • Buyer
  • Seller

  • In a market the buyer and seller comes on a common platform, where buyer buys goods and services from the seller in exchange of money.

    Let us show you what are various kind of Financial Markets.:-

    Stocks And Shares Investing

    A place where people invest money for a longer term i.e. more than one year is called as capital market. In a capital market various financial institutions takes money from individuals and invest in capital market for long term

    Capital market further expand in to two:-.

    1. Primary Market-

    Primary Market is a form of capital market where companies issue new stock, shares and bonds to investors in the form of IPO s (Initial Public Offering). Primary Market is a form of market where stocks and securities are issued for the first time by organizations.

    2.Secondary Market-

    Secondary market is a form of capital market where stocks and securities which have been previously issued are bought and sold.


    Types Of Capital Market

    1. Stocks Markets-

    Stock Market is a type of Capital market which deals with the issuance and trading of shares and stocks at a certain price. Most people understand that a stock market is a place where shares are bought and sold, and in essence this is true. Most people understand a stock market is dominated by traders who speculate on the price of shares to make a profit on the difference between the buying and selling price, and in essence this is true. But a stock is so much more in-depth than these two basic propositions would suggest, and requires some deeper analysis to get to the bottom of what's really going on

    You might be interested reading various Methods of selling in stock market.

    2. Bond Markets - 

    Most of the times when stock prices moves up, bond prices moves down. However, there are many different types of bonds
    including Treasury Bonds corporate bonds, and municipal bonds. Bonds also provide some of the liquidity that keeps the economy functioning smoothly.

    It's important to understand the relationship between Treasury bonds and Treasury bond yields. Basically, when Treasury bond values go down, the yields go up to compensate. When Treasury yields rise, so do mortgage interest rates. Even worse, when Treasury values decline, so does the value of the dollar. This makes import prices rise, which can trigger inflation. Treasury yields can also predict the future -- an inverted yield curve usually heralds a recession.

    3. Commodity Markets-

    Commodities are goods that are typically used as inputs in the production of other goods and services. Commodity prices are determined largely by supply and demand interactions in the global marketplace. Supply and demand conditions may be influenced by factors like the weather, geo-political events, and supply-side shocks (e.g., wars, hurricanes). Some examples of commonly traded commodities are energy products like oil and natural gas, metals like gold, copper and nickel, and agricultural products like sugar, coffee, and soybean. Commodities exhibit interesting risk-return profile. Commodities not only offer a good way to diversify a portfolio of stocks and bonds, they often offer better returns. According to a Yale Study, Since 1959, commodities futures have produced better annual returns than stocks returns and outperformed bond returns even more During the 1970s, commodities futures outperformed stocks; during the 1980s the exact opposite was true - evidence of the "negative correlation" between stocks and commodities that many of us have noticed.

    The returns on commodities futures "positively correlate" with inflation. Higher commodity prices were leading a wave of high prices in general (i.e., inflation), and that's why commodity returns do better in inflationary times, while stocks and bonds perform the returns on stocks in companies that produced the same commodities.


    4. Money Markets-

    Money market involves individuals who deal with the lending and borrowing of money for a short time frame. Money market is distinguished from capital market on the basis of the maturity period, credit instruments and the institutions:

    a. Maturity Period

    b. Credit Instruments

    c. Nature of Credit Instruments

    d. Institutions

    5. Derivative Markets

    The Derivatives Market is meant as the market where exchange of derivatives takes place. Derivatives are one type of securities whose price is derived from the underlying assets. And value of these derivatives is determined by the fluctuations in the underlying assets. These underlying assets are most commonly stocks, bonds, currencies, interest rates, commodities and market indices. As Derivatives are merely contracts between two or more parties, anything like weather data or amount of rain can be used as underlying assets. The Derivatives can be classified as Future Contracts, Forward Contracts, Options, Swaps and Credit Derivatives.  

    You might be interested reading Stock market terms / terminology.

    6. Future Markets

    Future market is a type of financial markets which deals with the trading of financial instruments at a specific rate where in the delivery takes place in future.

    7. Insurance Markets

    Insurance market is simply the "buying and selling of insurance." Consumers or groups buy insurance for risk management from insurers offering coverage for specific risks.

    Individual consumers purchase insurance coverage to protect against risk. Common insurance market products including homeowner's, auto, life and health insurance. Monthly premiums are paid to the insurer in exchange for a commitment of coverage according to the policy.

    8. Foreign Exchange Markets


    Foreign Exchange market as it is often called is the market in which currencies are traded. Currency Trading is the world’s largest market consisting of almost trillion in daily volume and as investors learn more and become more interested, the market continues to rapidly grow. Not only is the forex market the largest market in the world, but it is also the most liquid, differentiating it from the other markets. In addition, there is no central marketplace for the exchange of currency, but instead the trading is conducted over-the-counter. Unlike the stock market, this decentralization of the market allows traders to choose from a number of different dealers to make trades with and allows for comparison of prices. Typically, the larger a dealer is the better access they have to pricing at the largest banks in the world, and are able to pass that on to their clients. The spot currency market is open twenty-four hours a day, five days a week, with currencies being traded around the world in all of the major financial centre.

    9. Private Markets

    Private market is a form of market where transaction of financial products takes place between two parties directly.

    10. Mortgage Market

    In most countries, a mortgage is the primary way that prospective homeowners have of buying a house, flat or land on which to build a property, collectively called real estate. This type of mortgage is called a residential mortgage or home loan. They are most often taken up by individuals or couples. The payment is made to the individual concerned on submitting certain necessary documents and fulfilling certain basic criteria.