What are financial markets?

Financial markets refer to the marketplaces which provide an avenue for the trading of securities, such as stocks, derivatives, foreign exchange and bonds. 

There are a number of financial markets – stock markets, bond markets, commodities markets, derivatives markets and cryptocurrency markets. 

The stock market involves the trading of shares of ownership of public companies. The stock market is used by these public companies to raise capital through initial public offerings (IPOs), with shares then traded among investors in a secondary market. Indicators of how a stock market is doing exist, they are indices, such as the Dow Jones Industrial Average and the S&P 500. 

The bond market involves the trading of bonds, which are securities in which investors can loan out money for a specified period, earning interest. It allows companies and the government to secure funds to finance an investment.

The commodities market is the trading of natural resources or commodities such as gold, steel, meat and oil. They are usually referred to as spot commodity markets, where money is exchanged for these agricultural products, energy products, precious metals or soft commodities. 

A derivatives market involves contracts between two (or more) parties in which the value of the contract is based on the market value of the underlying financial asset or set of assets. Rather than trading stocks, derivatives markets trade futures and option contracts, where the value is based on the underlying instrument such as a market index, stock, bond, commodity, currency or even an interest rate. 

A cryptocurrency market is the trading of decentralised digital assets such as Bitcoin and Ethereum that are based upon blockchain technology. These can be traded on centralised or decentralised exchanges. These exchanges involve the use of digital wallets in which traders can swap cryptocurrencies for one another, or for fiat.

The main three that we usually refer to are the currency, equity and cryptocurrency markets!