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Introduction
What is a financial market? You’ve probably heard this term a lot and know one or two of them, but what function do financial markets really have in the global economy? In this article from Farhad Moghadam Salimi’s Crypto School, we will examine the types of financial markets and their importance.
What is a financial market?
In general, financial markets refer to any type of market where securities are traded. These markets include the stock market, forex, digital currencies, bonds, etc. Financial markets play a fundamental role in the global economy. By allocating resources and creating liquidity, they keep businesses running and economies flowing.
Types of financial markets
When it comes to what a capital market is, most people are likely only familiar with the stock market or the cryptocurrency market. However, there are many different types of financial markets, each of which focuses specifically on trading certain types of securities and financial resources.
Stock Market
The stock market is probably one of the most comprehensive types of financial markets. Stock markets are channels through which companies can offer their shares to buyers and investors, thereby increasing their capital. The stock market of any country can be considered a mirror that reflects the state of its economy. The more dynamic and stronger the economy of a country, the better the state of the stock market.
Bond Market
What is meant by bonds in the financial market? Bonds are types of financial instruments that are provided to individuals by governments or companies. They promise to return the principal amount paid by the individual for the bonds plus interest after a certain period of time. In fact, we can say that they borrow from ordinary people. For this reason, the market for trading these bonds is also called the “debt-based financial market”. Usually, some institutions such as municipalities, government agencies and even some private companies sell these bonds.
Cryptocurrency Market
What is the place of the crypto market among the types of financial markets? It should be said that the cryptocurrency trading market is relatively young compared to other financial markets, but in this short time it has expanded greatly among investors. The crypto market focuses specifically on cryptocurrency trading and has three main characteristics: immutability, transparency, and decentralization.
The crypto market is not controlled by any government or institution and its transactions are essentially peer-to-peer. This means that you do not need to use an intermediary such as a bank or any other financial institution to buy and sell cryptocurrencies. According to forecasts, the cryptocurrency market will expand several times by 2030. However, despite all the advantages mentioned, before starting your activity, it is necessary to educate yourself well with the ins and outs of investing in the crypto market, such as the types of financial risks in the cryptocurrency market and capital risk management training, etc.
Forex Market (Foreign Exchange)
The Forex market is another famous example of a financial market. The Forex market is for buying and selling currency pairs. People who work as investors in this market manipulate the fluctuations in the ratio of two specific currencies to each other.
Commodities Market
In the commodity exchange market, manufacturers directly offer their goods for sale to buyers, eliminating intermediaries. Products traded in these markets can include all types of automobiles, oil and gas, agricultural products, etc.
Money markets
Money markets have short maturities and high liquidity. These markets offer high investment security and large trading volumes, but at the same time, they have relatively lower returns.
Derivatives Market
The derivatives market is one of the tools used to increase investor confidence and manage risk. In this market, investors can reduce their trading risk by predicting the price of assets such as commodities, stocks, bonds, etc.
Direct Market (Over-the-counter Market)
What is meant by direct market among the types of financial markets? Direct market is the OTC market. OTC is a decentralized and virtual market. In this market, securities are traded directly without the need for brokers. Buying and selling in the direct market requires more concentration. This is because most companies whose shares are sold OTC have more financial risk.
Types of financial markets based on organizational structure
Types of financial markets are divided into four categories based on legality and organizational structure:
– Official markets (stock exchanges)
– Over-the-counter markets
– The third market, which is the market for large institutions, organizations, and entities that have lower fees and commissions.
– The fourth market is for companies and organizations that have major transactions. These companies enter into transactions directly without the need for brokers to intervene, so they do not have to pay commissions.
Types of financial markets based on time of assignment
Also, financial market types are divided into two general categories based on the time of assignment:
– Cash financial markets
– Futures financial markets
In the spot market, the exchange of money and goods takes place immediately after the agreement between the buyer and the seller. In the future market, the final transaction takes place in the future after the agreements are finalized. In these transactions, a contract is concluded between the parties that guarantees that both parties will remain faithful to their obligations.
What is the function of the financial market?
Now that we are familiar with financial markets, the question is what is the function of financial markets? What is their function in the world of economics? Financial markets are used for the purpose of allocating resources to businesses. In fact, they facilitate trade for different types of sellers, suppliers, etc.
final word
We have examined what the financial market is and what types it has in this article. Now, understanding which financial market is better generally depends on our investment goals. You can complete your information by following sources such as the best Persian cryptocurrency news sites , or reading the content of websites active in the field of news and education about various financial markets such as the stock market, Forex, etc. and find the best financial market that best suits your conditions and goals.
