The Market of Markets and What They Sell

Imagine going through the market with the intention of buying fruits. There are stalls upon stalls, left and right of you. One sells apples. Another sells oranges. Yet another sells bananas. Meanwhile, a big stall sells apples, oranges and bananas. The financial market is just like this. It contains various markets that let you invest in different financial instruments.

The major markets are as follows: stocks (equity), bonds, forex, physical assets, and derivatives. Inside these major markets are specialty markets. It can get complicated so for now, we will only tackle the major markets.

Stocks (Equity)

Arguably the most popular market in the financial market is the stock market. Investors get to buy and sell the shares of a publicly traded company through stock exchanges located at the financial hubs all around the world. Profits are generated here through capital gain and through dividends. Capital gain is when the value of shares increase while you own it. Earning through dividends mean you make money from the income of the company because you own a share of it.

Bonds

The bonds market is also known as the debt market. The main players in these market are governments, companies, and financial intermediaries. The financial instruments traded here include bonds, notes, certificates of deposit, bills and others. What they mainly do is issue debt which they use a capital. The investor will make money from the debt issuers’ regular payments to investors or debtholders in the form of coupon payments. Once the debt matures, they then pay the principal on the debt.

Forex

Perhaps the biggest and most active market is the forex market. Investors get to trade currencies by buying and selling them based on their fluctuating prices brought about by their exchange rates. Traders get to take advantage of the little changes in the prices and use leverage to scale profits.

Physical Assets

Physical assets include jewelry, precious metals, cattle, real estate, etc. This market allows investors to buy and sell these items with risks and costs attached to them such as holding fees and living cost for cattle.

Derivatives

The derivatives market is basically an expansion of all the markets mentioned above. These are the options, futures, and forwards. There are more types but the main types are the ones used. Investors can go long or short using these derivatives.