Financial markets are a variety of different types of marketplaces where you can use and manage your finance.
It includes the buyers and sellers participating in trading of some kind of assets.
These assets may be bonds, equities, currencies, and derivatives.
Investors have access to a large number of financial markets and exchange a vast array of financial products.
However, most of these markets have remained exclusive to major international banks and financial professionals but some are always open to private investors.
So, explore the various types of financial markets and learn their functions to see what’s fit best to your needs.
Types of Financial Markets
1. Capital Markets
A capital market is the one which involves both individuals and corporate institutions.
It helps in channelize surplus funds savers to institutions which then invest them into productive use.
To funds the financial needs, an organization can sell its own company stocks and bonds to the investors.
The buying and selling are undertaken by both individuals and the corporate bodies.
Capital markets consist of primary and secondary markets. Primary markets deal with the trade of new issues and stock whereas secondary market deals with the exchange of existing stocks.
2. Money Market
Money market, on the other hand, is a short-term trading investment where private investors can invest their money for a limited time.
The money market is used by participants as a means for borrowing and lending in the short term.
It consists of certificates of deposit, U.S. Treasury bills, banker’s acceptances, commercial paper, municipal notes, federal funds, and repurchase agreements.
Because money markets are conservative, so the return investments are lower than any other types of investments.
3. Derivatives Markets
The derivative market has its value from its underlying assets. It is a contracted market which is ideal for advanced and experienced investors only.
A derivative is a financial security with a value that reliant upon its own derived from and assets.
The most common assets of the derivatives markets are stocks, bonds, commodities, currencies, interest rates, and market indexes.
The financial agreement entered into a derivatives market and involves the performance of a specified asset within the stocks or commodity of the derivatives markets.
4. Cash or Spot Market
The Cash Market is a complex and delicate market, also suitable for experienced investors only. Investing in the cash or spot market is highly sophisticated with opportunities for both big losses and a big gain. In this Cash markets, the goods are sold for cash and delivered immediately. This is a different kind of market where trades are determined at forwarding prices.
5. The OTC Market
The OTC Market (over the counter) falls under the secondary market which is also referred as to the dealer market. The OTCs are those stocks that are not trading on the stock exchange. They can be described as providers of pricing information for securities.
Most of the securities that trade in OTC are penny stocks and small companies.
This kind of market is good for starters and inexperienced investors.
These are the main financial types of markets, which helps the firm raise money.
These financial markets can also take a loan from a bank and repay it with interest, issuing bonds to borrow money from investors that can be repaid at a fixed interest rate.