What is financial market?

A financial market is a marketplace that offers a platform for the selling and purchase of assets including bonds, equities, currency trading, and derivatives.  In the United States and some parts of the world, financial markets go by a variety of titles, such as "Wall Street" and "capital market."  Corporations and investors can raise money on financial markets for business expansion or to increase their own wealth.

Every nation has at least one financial market, albeit their sizes vary. There are so many of them. Some are modest, while others, like the New York Stock Exchange (NYSE), which transacts trillions of dollars every day, are well-known around the world. 

Financial markets allocate resources and provide liquidity for enterprises and entrepreneurs, which is essential for the proper functioning of capitalist economies. Trading financial holdings is made simple for market participants by the markets. 

Stock Market

One form of financial market is the stock market. Buying and selling different kinds of financial assets, such as shares, bonds, currencies, and derivatives, creates the financial markets. To ensure that prices are efficient and accurate, financial markets primarily rely on informational transparency.

The stock market is arguably the financial market that is most prevalent. These are generally recognized platforms where investors and traders can buy and sell shares that are listed by companies. Companies use stock markets, also known as equities markets, to obtain cash through an initial public offering (IPO), after which shares are traded between different buyers and sellers in a secondary market.

Stocks can be traded over-the-counter (OTC) or on public platforms like the New York Stock Exchange (NYSE) or Nasdaq. The majority of stock trading takes place on regulated exchanges, which are important to economic development since they not only give investors access to capital profits and dividend income but also serve as an indicator of the general performance of the economy.

Investors, traders, market makers (MMs), and experts who manage liquidity and offer two-sided markets are typical stock market participants. Brokers are third-party market participants who serve as neutral middlemen who help buyers and sellers complete transactions but do not have any actual positions in stocks.

Over-the-counter Market

An over-the-counter (OTC) market is a decentralized marketplace where market players exchange securities without the use of a broker. Trading takes place online rather than at physical locations in a typical OTC market. The majority of stock trading is conducted through exchanges, while OTC markets may facilitate trade in some equities — for example, smaller or riskier enterprises that fail to meet the listing standards of exchanges. However, only a few derivatives markets are OTC, making them a significant portion of the market.

Money Markets

One of the foundational elements of the world financial system is the money market. The money market is a platform for trading short-term debt investments. It involves substantial transactions between organizations and traders at the retail level. 

Banks that lend to one another and to large businesses that generate capital by offering commercial paper on the market for other businesses or funds to purchase, as well as investors who buy bank CDs as a secure way to store money, are all market participants.

Bond Markets

The term "bond market" refers to all debt securities trades and issuance, and it is also used interchangeably with the terms "debt market," "fixed-income market," and "credit market." Bonds are frequently issued by governments to raise money for debt repayment or infrastructure development. Governments may also issue bonds to finance corporate expansion initiatives or support continuing operations, publicly traded corporations.

The primary market and secondary market are the two main segments that make up the bond market. The main market, often known as the "new issues" market, is where strictly all transactions between bond issuers and bond buyers take place. In summary, the primary market results in the production of entirely new debt instruments that have never been made available to the general public.

Forex Markets

Participants in the forex market, including banks and individuals, are able to purchase, sell, or swap currencies for speculation and hedging. The foreign exchange (forex) market, which comprises of central banks, commercial banks, commercial enterprises, investment management firms, hedge funds, small-time forex brokers, and investors, is the largest global financial market.

The forex industry is dominated by a network of systems and traders from all over the world, not by a central exchange. Forex brokers serve as market makers who can set ask and bid values for a currency pair that are different from the most aggressive bid in the market.

The interbank market and the over-the-counter (OTC) market are the two options that make up the currency market.

Derivatives Markets

The derivatives market is a marketplace for financial products that are generated from other types of assets, such as futures contracts and options.

The market for exchange-traded derivatives and the market for over-the-counter derivatives can be separated. Although many market players are active in both, the legal status of these products and the way they are exchanged are substantially different.