Financial Markets: Overview and Types



Financial markets refer broadly to any marketplace where the trading of securities occurs, like bonds, stocks, foreign exchanges and derivatives. Often, these markets are called by different names ‘Dalal Street’ (Bombay Stock Exchange) and ‘Capital Market’, In America some people used to say it like ‘Wall Street’ (New York Stock Exchange). Simply put, businessperson and investors used to go to the Financial Market to raise money to grow their business and make more money through buying shares or bonds of various companies respectively.

To describe it clearly, let’s assume you have started a business. Now, you want to raise funds to expand your business then you will have to come to that platform where you can raise money through selling your company’s shares or bonds in exchange of money from the investors. There is no doubt that other types of assets are also trading on that platform like commodities, currencies and derivatives and stock market is just one type of financial market.

                                   Similarly, if you have an enough amount of money and you want to do investing or trading then you buy each type of assets (Bonds, Equity or Stocks, Commodities, Currencies and Derivates).

Types of Financial Markets


There are mainly two types of financial markets:

  1. Capital Markets
  2. Money Market 

1. Stock Market

In stock market, companies offer their shares (a part of ownership in a company) to public. People who buy company’s shares are called as Investors and the stock market provides various benefits with compare to OTC (Over-the-counter) like facilitating liquidity, providing, transparency, and the maintaining of market price of stocks or equities. In case of OTC, both of the parties do trades directly, without the supervision of an exchange.

 Let’s have a look on some popular stock markets:


2. Bond Market

In Bond Market, government and companies take advantages through raising funds from the investors to secure money to finance various projects or investments. Simply put, the bond market is a place where investors buy bonds, and the company returns the money within an agreed time interval with interest. That’s why Bonds are also known as Fixed Income Securities.   

3. Commodity Market  

Commodities market is a place where traders and investors buy and sell natural resources or commodities like beef, corn, gold and oil. Mostly, commodities are split into two types: hard commodities and soft commodities. Hard commodities are typically natural resources that must be mined or extracted—such as gold, rubber, and oil, whereas soft commodities are agricultural products or livestock—such as corn, wheat, coffee, sugar, soybeans, and pork.

          There is a Future commodity market wherein the price of items that are to be delivered at a given future time is already identified and sealed today.

4. Forex Market (Currency Market)

In Forex (Foreign exchange) Markets, people sell, buy, exchange and speculate on currencies, that’s why it is also known as Currency Market. Forex Market is most liquid market in the world. The currency market handle more than $5 trillion in the daily transactions, which is more than the futures and equity market combined. It is global decentralized and Over-the-Counter market, participants of currency market are Commercial Companies, Central Banks, Investment Management Firms, Hedge Funds and retail forex brokers and investors.      

5. Derivative Market (Derivatives)

 A derivative is a contract between two or more parties which derives its value or price from an underlying asset, there are mainly four types of Derivative Contracts such as futures, forwards, swaps and options. However, Swaps are complex instruments that are not traded in Indian stock market.


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