What is meant by a financial market?
A financial marketplace is one where security trading is done. It comprises, among other markets, the derivatives, stock, bond, and forex markets. Capitalist economies across the world rely on such markets to operate efficiently.
What are the types of markets?
Financial markets are categorized into types depending on the classes and forms of financial products provided.
Bond market
A bond market is made up of investors who offer loans for a specific duration at a specific rate of interest. Bonds are issued by corporations, governments, states, and municipalities to finance projects and operations.
Money market
Money markets are built on the trading of products boasting short-term (less than a year), liquid maturities. When compared to other markets, they are relatively safe and consequently offer low interest rates.
Forex market
The forex or foreign exchange market is a remarkably liquid market where participants observe the exchange rates of currencies to buy, sell, speculate, and hedge accordingly.
Other common forms of markets
Over-the-counter market: This decentralized market revolves around the trading of securities directly and electronically, which is why it has no physical location.
Commodities market: This market involves the exchange of soft and physical commodities between producers and consumers.
Factors to focus on while choosing a market
When choosing a financial market, there are several factors worth considering, they include:
Market knowledge: Determine how much you know about and understand specific markets. Do this before all else, as your familiarity and expertise are imperative.
Risk tolerance: Evaluate your risk level to see which market aligns perfectly with how much risk you are willing or unwilling to take.
Investment horizon: Some markets are perfect for short-term gains, while others are better suited for long-term growth.
Additionally, also consider your liquidity needs and financial goals.
To gain more insight from experts on the various financial markets and the financial instruments they comprise, get in touch with the Arthavidhi team today. Call or sign up to book a free consultation now.
