What is Financial Market?

Financial Markets

A market that involves the creation of Assets and platforms for trading (buying and selling).

For example:- shares, real estate, debentures, bonds, currencies, derivatives, and so on. 

All these terms have a direct impact on a country's economy. They act as instruments for investors for purposes like saving and business. Financial markets are often associated with stock markets; sometimes they are differentiated with the view that on financial markets we trade only securities and on the stock market but we can also trade other values, such as real estate, property, and currency.

All types of classifications financial market:-

 

 

Capital Markets:-

This financial market which deals with shares (stocks) and bonds which are bought and sold by the investors. Capital markets consist of money market, bond market, mortgage markets, stock market, spot or cash markets, derivatives markets, foreign exchange, and interbank markets. 

They are subdivided into primary and secondary markets:-

Primary market - The primary market mainly deals with new securities which are issued in the stock market for the first time does it is also known as the new issue market the main function of the primary market is to facilitate the transfer of the newly issued shares from the companies to the public. The main investors in this type of markets are Financial Institutions, banks, etc

Secondary market - it is the market where the trading of the securities actually takes place, thus it is also referred to as the stock market. Here the buying and selling of securities take place the existing investors sell the securities and the new investors buy the securities. 

Stock markets - The market which provides companies with the power to issue shares of their company for the investors and the investors to trade in the shares of the issuer company. Example:- Reliance Industries Limited(stocks).

Bond markets -  The market which provides the issuing of bonds and the facility of trading onto them. Example:- Government Bonds.

Commodity market - The market which trades into the primary economic sector and commodities like gold, oil, and other raw products. 

Money market - The market which provides short-term loans which have to be cleared in less than a year. 

Derivatives market - The market for derivatives and financial instruments like futures contracts and options which are derived from other assets like a particular company's stock. 

Futures market - The market where people can trade futures contracts that are defined by the exchange. 

Foreign exchange market - it is called over the counter market Orange simple world decentralized market for the trading of currencies of different countries.

Cryptocurrency - This currency refers to the digitalized form of assets designed to work as a medium of exchange where IEA the individual cryptocurrency owner can transfer their ownership digitally. Example:- BITCOIN.

Spot market (also called cash market) - They are the public financial markets in which the commodities are the financial instruments they are traded for immediate delivery.

What is Real Estate:-

Real estate is a property consisting of land and the buildings on it (the most popular aspect of money-making in India), along with its other features such as crops, minerals, or water, as per its location. The examples could be many:- Apartments or flats, terraced houses, multi-family houses, a particular plot, mobile homes, villas, etc.

Mutual Fund:-

Mutual Funds are a great start to build a diversified portfolio. They are the ones who make your investments easier through there own expertise if you buy them. 

It is again a very vast topic to understand so click here for studying in more detail.

Characteristics of the Indian financial markets:-

• Economic growth - It helps in the acceleration of the economy of our country by providing resources to those who have surplus money me and want to be an investor.
• Act as a link - it connects the investors and the borrowers and acts as a bridge between them.
• Allows long term and short term Investments - for those individuals who want to invest financial markets provide the opportunity of putting their savings into various schemes and securities for a little or a longer period.
• Easy trading - These markets are very easily available for anyone either they are investors for buyers.

Risks and Returns:-

Risk-taking in general, and in financial markets in particular, is well known to be gender-dependent. In a financial context, how the level of testosterone predicted the financial return, and cortisol the risk-taking, in a group of traders on a London trading floor. However, as shown in other studies, the higher financial returns by certain traders only came about by higher risk-taking. Where the incentives for risk-taking at the individual level are well understood, very little is known about the causes and pathways which lead to risk at the system level, that is risks affecting the entire financial system, called systemic risks. Playing a safe game in a diversified manner is advised by all the major experts in these fields.

• All investors aim to invest in Markets at tangent points in the efficient frontier. The selection of portfolios by investors depends on the individual investors’ risk-return utility function.

• Investors can borrow or lend any amount of money at the risk-free rate of return. Government treasury bills offer a risk-free rate of return.

• There are no taxes or transaction costs involved in buying and selling assets.

• The risk-free asset has zero variance.

• Capital market theory suggests that investors diversify their cash flows between riskless security and the risky portfolio.

• Returns on these investments can be exponential if a person with good analyzing skills and a proper mindset.