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Financial Market: a look at Top 8 major financial markets

 

By Daniel Asikpo Sep 05, 2023

 

When talking about the financial market, the first thing that comes to mind is the Forex market before any further extension like the stock market or the latest accompaniment - the cryptocurrency market.

 

 

This niche sometimes closes the gap to knowledge and exploration of a diversified financial market which one can opt in and still make good returns on investment if all trading factors are put into consideration. I must say, as we all know in the financial market, risk is inevitable.

 

Although the financial world may seem too broad for many, this article aims to enlighten as we'll take a closer look at the definition and eight major financial markets that shape the world of finance.

 

What is a Financial Market?

 

Financial markets can be described as a well-organized system where participants trade a wide range of financial assets, like stocks, bonds, currencies, and commodities. A place where individuals, institutions, and governments buy and sell various financial instruments such as stocks, bonds, currencies, commodities, and derivatives.

 

One can convincingly say the financial market has been a global channel to the world of finance by creating a marketplace that draws several entities. These markets serve as the core infrastructure for allocating capital, setting prices for assets, and enabling economic transactions among individuals, corporations, and governments. 

 

8 Major Finance Markets In The World

 

1. Forex Market (Foreign Exchange)

 

Well known for its liquidity, the Forex market is the global marketplace where participants trade currencies. It's the largest and most liquid financial market in the world, where individuals, institutions, governments, and businesses exchange one currency for another usually for 24 hours and five days a week. 

 

Traders in the forex market aim to profit from changes in exchange rates by speculating on whether a currency will appreciate or depreciate relative to another. You can trade the forex market through various avenues which includes; forex brokers, online trading platforms, mobile apps, Demo account, Regulations, Institutional forex and others.

 

It's a complex market  I must say with various trading strategies and risk factors. Remember that Forex trading carries a high level of risk and may not be suitable for everyone. It's important to educate yourself and develop a trading strategy.

 

2. Stock Market

 

Another reputable tradeable market is the stock. The stock market is where shares of publicly traded companies are bought and sold. When one buys a stock which is also known as equity or shares, he owns a portion of that company and participates in the profit or potential loss the company incurs. 

 

It serves as a way for companies to raise capital and for investors to potentially earn returns on their investments.

 

Many investors boast of success in the stock market and cite the compounding result to long-term investment. It is a market that requires long-term thinking I must affirm.

 

Just like its coherent neighbour, it carries the risk of potential loss as stock prices are influenced by various factors, including company performance, economic conditions, and investor sentiment. You can trade the stock market through Direct Stocks Purchase Plans (DSPPs) or platforms like; online brokerage accounts(e.g. Robinhood), International brokers (e.g. Saxo bank), robo-advisors (e.g. wealth front), apps (e.g We bull and M1 finance) and many others.

 

3. Bond Market

 

The bond market is a crucial market for financing large-scale projects, infrastructure development, and government expenditures. Known to be a lending process from investors mostly to governments, corporations or municipals in exchange for periodic interest payments and the return of the bond's face value (principal) at maturity.

 

In a nutshell, the bond market is a financial market where participants buy and sell debt securities, known as bonds.

 

Bondholders (individuals or entities that hold one or more bonds) are the legal owners of the bonds that they hold and earn income from the interest payment by the bond issuer.

 

Bonds can be traded through Over-the-counter (OTC) markets, Bond Mutual Funds and Exchange Traded Funds (ETFs), Bond exchanges like NYSE, Nasdaq etc. and many online platforms. When trading bonds, one needs to be wary of the potential risk involved as economic factors can downsize your potential ROI or cause a complete loss.

 

4.  Commodity Markets

 

Just as its name implies, a commodity market is a financial market where commodities (raw materials or primary agricultural products) are traded. This market comprises soft commodities like livestock, and agricultural products and hard commodities like oil, gold, silver etc.

 

Commodity markets exist to facilitate the buying and selling of these physical goods, which can be essential for industries and global trade. Traders and investors use commodity markets to speculate on the future price movements of commodities. They can profit from both rising and falling prices.

 

You can trade the commodity market via Over-the-Counter (OTC) markets, Commodity pools, Commodity exchanges (e.g. CME, NYMEX, ICE, LME etc.), online brokerage accounts (e.g. E*trade, Charles Schwab, TD Ameritrade etc) and many others. Just be vested with its potential risk.

 

5. Derivative Markets

 

Here, participants trade financial instruments known as derivatives. Their values depend on or are derived from an underlying asset such as bonds, commodities, stocks, interest rates or currencies. Most known types of derivatives include futures contracts, swaps, options and forwards.

 

Derivatives can be complex as their value is determined by the price of the underlying asset, making them highly leveraged and potentially risky. Participants use derivatives for various purposes, such as hedging against price fluctuations, speculating on future price movements, or managing risk in their portfolios. This market I must say adds to global finance by providing the needed liquidity.

 

There are so many platforms and channels to trade derivatives which include; futures and options exchange (e.g. CME, ICE, CBOE etc.), online brokerage accounts (e.g. E*trade, interactive brokers etc.), Commodity exchanges, OTC market, Forex markets and many others. 

 

6. Money Market 

 

The money market is well known for its short-term and liquidity characteristics. Here is a financial market where short-term debt securities with high liquidity are bought and sold. Participants (individuals, banks, corporations, and governments) can take advantage of the money market to manage their short-term cash needs and investments.

 

This market deals with short-term debt instruments like; treasury bills, Certificates of deposits(CDs), Commercial papers, Repurchase Agreements (Repos) and banker acceptances. The interest rate or yield in the money market is relatively low due to its shorter maturity.

 

One can trade the money market through over-the-counter (OTC) markets, electronic trading platforms, and through intermediaries like banks and brokers. The potential risks associated with money market instruments are relatively low but not risk-free.

 

7. Real Estate Market

 

The real estate market deals with the buying and selling of properties which include but are not limited to lands, houses and commercial buildings. People often engage with the real estate market to buy homes, invest in properties, or conduct business in the real estate sector. This sector is complex, I must add.

 

The key to success in this market is to identify the needed Strategies which are;

 

Flipping: Buy properties at a low price, make improvements, and sell at a higher price.

 

Buy and Hold: Purchase properties for rental income and long-term appreciation.

 

Wholesaling: Find undervalued properties and sell the contracts to other investors.

 

Real Estate Investment Trusts (REITs): Invest in REITs which are like stocks but for real estate.

 

Several channels to trade real estate include; Local real estate markets, online real estate marketplaces (e.g. Zillow, realtor.com, trulia etc.), REITs and many others. The real estate market carries potential risk but is highly rewarding.

 

8. Cryptocurrency Market

 

The cryptocurrency market is the latest collection of the financial market which has gained massive adoption by the public. Like the forex market which deals with fiat currency trading, the cryptocurrency market deals with digital and virtual currencies based on blockchain infrastructures.

 

This market holds decentralized digital assets of which bitcoin and ethereum are massive players in this industry. 

 

One can participate in the crypto market through exchanges like Binance, Kraken, Coinbase, Bittrex etc.

 

The crypto market carries its potential risk, especially in the aspect of it being very volatile. It is always advised to trade reputable currencies in this market to mitigate potential losses.

 

To conclude I will say that the financial market indeed is broad and needs carefulness through thorough self-education. In the financial market, I must rephrase, that risk is inevitable.

 

Your ability to strategize and apply this strategy is key to whether you may come out with a loss or gain especially in a bull market. Though it may be advisable to find a niche in the financial market, don't shy away from the needed exposure, who knows if where you are is your true niche.