Deminor Wiki - Financial Markets

Types of Financial Markets

Stock Markets:

Stock markets are venues where shares of publicly listed companies are traded. Major stock exchanges include the New York Stock Exchange (NYSE), the NASDAQ, and the London Stock Exchange (LSE). These markets enable companies to raise capital by issuing shares to investors, who can then buy and sell these shares among themselves.

Bond Markets:

Bond markets are platforms where debt securities, such as government and corporate bonds, are issued and traded. These markets allow entities to borrow funds for various purposes, such as infrastructure projects or corporate expansion, by issuing bonds to investors who receive periodic interest payments and the return of principal at maturity.

Over-the-Counter Markets:

An over-the-counter (OTC) market is a decentralized market—meaning it does not have physical locations, and trading is conducted electronically—in which market participants trade securities directly (meaning without a broker). While OTC markets may handle trading in certain stocks (e.g., smaller or riskier companies that do not meet the listing criteria of exchanges), most stock trading is done via exchanges.

Money Markets:

Money markets deal with short-term borrowing and lending, typically for periods of one year or less. Instruments traded in money markets include treasury bills, commercial paper, certificates of deposit, and repurchase agreements. These markets provide liquidity for governments, financial institutions, and corporations to meet their short-term funding needs.

Derivatives Markets:

Derivatives markets involve financial contracts whose value is derived from underlying assets such as stocks, bonds, commodities, or currencies. Common derivative instruments include options, futures, and swaps. These markets are used for hedging risk, speculation, and arbitrage.

Foreign Exchange Markets:

Foreign exchange (Forex) markets facilitate the trading of currencies. These markets are crucial for international trade and investment, enabling businesses and investors to convert one currency into another. The Forex market operates 24 hours a day and is the largest financial market in the world by trading volume.

Commodity Markets:

Commodity markets are venues where raw materials and primary products are traded. Commodities can be categorised into hard commodities, such as gold, oil, and metals, and soft commodities, such as agricultural products like wheat, coffee, and cotton. These markets enable producers and consumers to hedge against price volatility and facilitate price discovery.