| A financial market is a mechanism allowing the trade of commodities including stocks and shares, currency
and bonds. General markets trade in many commodities and specialised markets trade in just one. Financial
markets bring buyers and sellers together and facilitate trade, risk transfer and the raising of investment
capital for companies and governments.
The term financial market is used to describe a range of markets including:
Capital markets (which includes Stock markets and Bond Markets)
The capital market is the market for securities and it enables companies and/or the government to raise
long-term funds. The capital market includes the stock market and the bond market
and is overseen by financial regulators, such as the Financial Services Authority in the UK.
Stock Markets
Although common, the term 'the stock market' is a slightly abstract concept for the mechanism that
enables the trading of company stocks. It is also used to describe the totality of all stocks, especially
within one country, for example in the phrase "the stock market was up today", or in the term
"stock market bubble".
It is distinct from a stock exchange, which is an entity (a corporation or mutual organization) in
the business of bringing buyers and sellers of stocks together. For example, 'the stock market' in the
United States includes the trading of stocks listed on the NYSE, NASDAQ, and Amex, and also on the OTCBB
and Pink Sheets.
To find out about stocks and shares go to
www.moneyjungle.net/shares
For a tour of the world’s stock exchanges go to
www.moneyjungle.net/stockexchange
To learn more about stock markets and their effect on the global economy visit http://en.wikipedia.org/wiki/Stock_market
Bond Markets
A bond market is the mechanism enabling the buying and selling of bonds. A bond is essentially
a loan or debt security; the issuer (corporation or government body) owes the holders a debt and is obliged
to repay the principal and interest (the coupon). Bonds are generally issued for a fixed term (the maturity)
longer than one year. The issuer is equivalent to the borrower, the bond holder to the lender and the
coupon to the interest.
For more information on bonds and gilts visit
www.moneyjungle.net/bonds
Encyclopaedic information on bonds and bond markets is available free at http://en.wikipedia.org/wiki/Bond_market
The Bond Market Association
http://www.bondmarkets.com/
Money markets
The money market is the mechanism for short-term borrowing and lending between banks providing short to
medium term liquidity within the global financial system. Trading takes place between global financial
centres around the world including London, New York City, Chicago,
Frankfurt, Paris, Hong Kong, Singapore, Tokyo, Toronto, Sydney.
See also Foreign Exchange
http://en.wikipedia.org/wiki/Foreign_exchange_market
Derivatives markets, including Futures Markets and Forward markets
Derivatives Markets are financial markets for the trading of derivatives through an exchange (such as
the Euronext) or over-the-counter (see below).
Derivatives are financial contracts where pay offs are measured by the performance of assets, exchange
rates, interest rates or indices such as a stock market index. The performance can determine how much
and when payoffs are made. There is an extensive range of derivatives contracts traded in the market with
the main types being futures, forwards, options and swaps.
http://en.wikipedia.org/wiki/Derivative_%28finance%29
Futures markets
An auction market in which futures contracts are bought and sold in many commodities including foodstuffs,
metals, currencies and fibres. Standardised derivative contracts are traded through futures exchanges.
A Futures Exchange (or futures and options exchange) is a corporation or mutual organisation
provides the facilities to trade derivatives. Previously known as commodity exchanges futures exchanges
now trade in many varieties of contracts including futures, options, options on futures, and other variations.
This method of trading is called exchange trading.
Futures contracts are sometimes confused with forward contracts which are private agreements negotiated
between two parties. Forward contracts are not traded on an exchange or standardised
like futures contracts. The seller agrees to deliver a specific cash commodity to a buyer at some point
in the future and a forward price is agreed. This enables the hedging of risk on things like currency
(e.g. forward contracts on Euros).
Useful links:
Learn more about Future Exchanges at
http://en.wikipedia.org/wiki/Futures_exchange
For a comprehensive list of Futures Exchanges including links visit:
http://en.wikipedia.org/wiki/List_of_futures_exchanges
Over-the-counter markets
Tailor made derivatives that are not traded on a futures exchange are traded on over-the-counter markets.
Over-the-counter trading (OTC) involves investment banks who have traders who make markets within these
derivatives, and their clients including government sponsored enterprises, hedge funds and commercial
banks. Most derivatives are sold OTC which reflects in their diversity and popularity. The outstanding
positions at the end of June 2004 stood at $220 trillion.
http://en.wikipedia.org/wiki/Over-the-counter_%28finance%29
Options
Options give the holder the ‘option’, without obligation, to buy or sell a specified amount
of a security within a certain time frame. Traded Options are traded on exchanges and therefore have systematic
pricing, standardised contracts and fulfills settlements through a clearing house.
For comprehensive information on the types of options available and their history visit http://en.wikipedia.org/wiki/Option
Insurance markets
In economic terms insurance is a form of risk management used to manage the risk of potential financial
loss. Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity
to another, in exchange for a premium and duty of care.
Foreign exchange markets
The foreign exchange (currency or forex) market is the largest financial market in the world in terms
of cash value traded. It enables the trading of one currency for another facilitates trading between governments,
large banks and multinational corporations, currency speculators and other financial markets and institutions.
Investors and currency speculators can trade through brokers, banks and online trading brokers.
moneyjungle.net has teamed up with
Easy Forex to
provide a straightforward way for the small investor to start trading in foreign
exchange.
See also Emerging Markets
Useful Articles and Links
All about financial markets:
http://en.wikipedia.org/wiki/Financial_markets#Definition
http://en.wikipedia.org/wiki/Foreign_exchange_market
Department of Trade & Industry
http://www.dti.gov.uk
http://www.dti.gov.uk/europeandtrade
(European Monetary Union)
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