Introduction to the Financial Markets

If you plan to trade on the financial markets, you must understand what the financial markets are.

The financial markets have many names such as the stock market, capital markets, and even just the markets.

But to put it in one definition; the financial markets are where buyers and sellers can participate in the trading of assets.

There are different types of markets, different participants, different products and even different types of investors. To understand the markets fully, it’s important to understand all the players involved.

Financial Markets

There are 3 Main Global Centers located across the world in New York, Tokyo, London,.

And there are even more types of Markets – Forex & Money Markets, Equities, Commodities, Fixed Income & ETF Markets & Emerging Markets.

These different products are traded on what is known as Exchanges.

One of the most well-known exchanges, for example, is the NYSE (New York Stock Exchange).

Who are the Market Participants?

let’s look at the corporations & institutions that make them.

A list of the main market participants are;

  • Brokers – Electronic and Voice Brokers
  • Central Banks – such as the BoE (Bank of England)
  • Commercial Banks – Retail and Investment Banks
  • Institutional Investors – Corporate and Investment Institutions e.g. Pension Funds / Hedge Funds

Types of Products that are traded.

What is actually traded on the financial markets?

There are essentially two different methods of Trading;

The first is Exchange Based Trading

Trading which is conducted on a centralized, highly regulated exchange

Example:

  • NYSE - New York Stock Exchange
  • NYMEX-COMEX - New York Mercantile Exchange - Commodity Exchange
  • LSE - London Stock Exchange
  • LME - London Metal Exchange
  • CME - Chicago Mercantile Exchange
  • CBOT - Chicago Board of Trade
  • IPE - International Petroleum Exchange

The second is Over the Counter Trading (OTC)

A security traded off an exchange, usually directly between banks through a dealer network

Example: The Inter Bank Currency Market, The Derivatives & Bond Markets.

Types of Investors (What kind of trader are you?)

There are several different styles of trading which will more often than not categorize a trader into one of the two below;

Speculator - A person seeking large profits in return for large risks by trying to anticipate price movements, in the hope of making quick, large gains

Hedger - A person whose primary motivation is not seeking profits, but instead to reduce the risk of adverse price movements in a security

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