Question & Answer: A financial market is a market in which people and entities can trade financial securities, commodities an…..

A financial market is a market in which people and entities can trade financial securities, commodities and other assets at prices that are determined by pure

supply and demand principles.

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Question & Answer: A financial market is a market in which people and entities can trade financial securities, commodities an…..
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Discuss the above statement in your own words ( 1000 word) to cover different types of Financial Markets

Expert Answer



Financial market refer to a marketplace where trading of various financial instrutments or securities like equities , bonds, currrencies & derivativies take place.Some financial market around the globe are –

  • New York Stock Exchange , US
  • London Stock Exchange , UK & Italy
  • Japan Stock Exchange, Japan
  • Shanghai Stock Exchange , China

In financial market price of the securities does not indicates their intrinsic value. The price here are influenced by the demand & supply principles. There are various factors which impact the demand & supply in any financial markets like systematic risk factors & unsystematic risk factors or financial factors or non financial factors or economic factors or political factors etc .

Generally in financial market there are people with trading mindset or with investing mindset.

  • Traders who wants to earn profit from daily fluctuation in the market.
  • Investors who invest money in the market for long run.

Different types of financial markets :-

  1. Exchange market – Market where price negotiation will made pubilically among various parties. like New York Stock Exchange , US
  2. Over the counter market (OTC) – Market where price negotiation will be made privately between two parties like NASDAQ.
  3. Capital market – Market where long term financial instruments like equity, debentures, bond etc are traded.
  4. Money market – Market where short term debt instruments like commercial paper , treasury bill , call money or notice money etc are traded.
  5. Foreign Exchange market – Market where trading of foreign currencies takes place . It is worth noting that more than five trillion dollor is traded on a daily basis in such market.
  6. Commodity market – Market where commodities like oil , iron , rubber , gold etc or even agricultural based products like sugar , cotton , coffee , wheat etc are traded.
  7. Derivative market – Derivative is a contract between two parties which derived its value from underlying assets ( like stock index , currency , commodity , interest rate ). It is the most volatile form of financial market.
  8. Primary market :- Market where securities are issued for the first time by the entity like IPO
  9. Secondary market :- Market where securities privioulsy issued are traded

How Price is determine in financial market ?

In any financial market price of a security is decided on the basis of bidding made by various parties.

  • Best buyers quotes higher price among all buyers.
  • Best sellers quotes lowest price among all sellers.

Some Common words used in financial market

  • Margin money:_

It is security money (refundable) payable by trader / investor at the time of first transcation which may be buy or sell. The amount varies from stock to stock on the basis of risk involved.

  • Limit price ;

It refer to price at which trader or investor wants to buy or sell the securities ie the best price

  • Squre off :-

Second transaction entered which is opposite to the first transaction to netoff the position in the market is known as square off.

  • Long position ;-

It is the buying position in the market.

  • Short position :_

It is sellling position in the market.

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