Financial markets, which include the stock market, bond market, currency market, and derivatives market, among others, are any marketplace where trading in securities takes place. For capitalist economies to run smoothly, financial markets are essential.
- Stock market
The stock market is arguably the financial market that is most prevalent. These are places where investors and traders can buy and sell shares that are listed by companies. Companies use stock markets, also known as equities markets, to obtain cash through an initial public offering (IPO), after which shares are traded between different buyers and sellers in what is referred to as a secondary market.
2. Bond Markets
A bond is a security in which an investor loans money for a defined period at a pre-established interest rate. You may think of a bond as an agreement between the lender and borrower that contains the details of the loan and its payments. Bonds are issued by corporations as well as by municipalities, states, and sovereign governments to finance projects and operations. The bond market sells securities such as notes and bills issued by the United States Treasury, for example. The bond market also is called the debt, credit, or fixed-income market.
3. Money Markets
The money markets typically deal in highly liquid, short-term securities with maturities of less than a year. They are distinguished by a high level of safety and a relatively low rate of interest return. The money markets feature substantial volume trading between institutions and traders at the wholesale level. They include money market accounts opened by bank customers and money market mutual funds purchased by retail investors. Purchases of short-term certificates of deposit (CDs), municipal securities, or U.S. Treasury bills are just a few examples of how individuals might invest in the money markets.