What is Financial Market and its Types? | Definition, Function, Features & Classification

Before knowing financial market let’s see what is meant by the term “Market”, Well in our locality there is a small market for vegetables, fruits & clothes and many other shop etc. where we can buy those thing to complete our requirements in exchange of money that’s it, this is called a “Market”. In simple word we can say that it is a marketplace where people go buying and selling something to get some goods/services in exchange of money is known as “Market”. Financial market is also works like that let see…

What is Financial Market?

Financial market is the place where we can buy some financial products like: Bonds, currencies, commodities, securities, shares, Mutual funds etc. and many other financial services. In this market we can use our money to buy these product and sell when their prices will grow. This market is known as “Financial Market”.

Definition of Financial Market

Financial market refers to the market where people can do buying and selling of financial assets and securities is known as “Financial Market”

Types of Financial Market

• Equity Market
• Bond Market
• Commodities Market
• Derivatives Market
• Money Market
• Crypto Market
• Real State Market
• Forex Market

1) Equity Market

Equity Market is also known for share/stock market. This is the place where people can buy companies shares like TATA Company, Google Company, Apple Company, Amazon Company, Reliance Company, Adani’s Company etc. and much more to get some percent of ownership in the company & also you can buy IPO’s here. This Market is known as “Equity” as well as “Share Market”.

2) Bond Market

Bond Market is known for “Debt Market” & also known for “Credit Market”. This is the market where debt securities are traded. Government and Corporate are included in debt securities eg. suppose government or corporates needs an loan for completing their projects or for other operations then they can borrow the money from us in the form of bonds. It is known as “Bond Market”.
This is exactly like the normal loans where banks gives the loan to us when we need it and they charge interest on it. So in the bond market their is a fixed interest rate where government and corporates promises that they have to give our money with interest rate. Its also a secure investment market if we compared to FD’s interest.

3) Commodities Market

Commodities market is the place where people can buy and sell raw materials like: Gold, Crude Oil, Species, Energy, Precious Metals etc. is known as “Commodities Market”. Well commodity are broadly classified into two parts: 1) Hard Commodities 2) Soft Comodities, Hard commodities are those commodities which is naturally produced like oil, metal, gold etc. and on the other Soft Commodities are those commodities which are extracted or mined like Wheat, Sugar, Rice, Corn etc.

4) Derivatives Market

Derivatives market is the market where people can trade in financials contracts like futures contracts or in options that are based on the values of their underlying assets example: stocks, commodities, currencies etc is known as “Derivatives Market”

5) Money Market

Money Market is a market which provides liquidity to the economy globally, it is a broader system of financial market. It is a short term debt-investment where only big companies or institution have a ability to buying and selling of securities of short-term maturities. In money market debt-investment assets like: Certificates of Deposits, T-Bills (Treasury bills), Commercial papers, Corporates bonds etc. This is a “Money Market”.

6) Crypto Market

Recently this market become the most popular market in all over the world. In this market people can buy and sell virtual currencies like Bitcoin(BTC), Etherium(ETH), Solana(SOL), Cardano(ADA) etc. and many other. Well this is a interesting market where there is no control over the government or not over anyone. It is a decentralized market for buying and selling the currencies virtually. This market is known as “Crypto Market”.

7) Real State Market

Real State market is a market for buying and selling of properties, lands etc. In this market people can buy houses for living as well as for investment purpose like buy at low price and after some years sell it for high prices. or you can use this house for giving rent someone, this is also a best investment. This type of market is known as “Real State Market”.

8) Forex Market

Forex Market is also known as “Foreign Exchange Market”. In this market people can do buying and selling of currencies like US dollar, Euro, Japanese yen, British pound, Australian dollars, Canadian Dollars etc. and much more for the purpose of hedging and speculation. This type of market is known as “Forex Market”.

Functions of Financial Market

The main function of the financial market is to borrow money from the investor and use it for productive use and serve it to the economy & as well as to the investor to grow their money. So let’s see all the functions in point wise:

• Mobilisation of Savings: Financial market helps peoples to mobilise their savings into investment, Any individual can use their savings in the financial market to grow their money. It is useful for the market to grow and also for economic growth.
• Interaction b/w investors & borrower: Financial market helps to make an interaction between investor and the borrower for getting money in the market & determining the price best price for the investor for their financial growth.
• Sharing of Risk: In a financial market there is a risk factor for loosing the money, that means it is a possibilty that investor can also loose their money. So that this market ensures that every investors are well aware of all the risks before entering in this market.
• Enough Liquidity for investor: In a financial market it has the enough liquidity for the investor, if any investor want to sell their securities so that because of the liquity he can sell it and convert it to real cash money.
• Capital Formation: Financial market helps business and industries to provide the capital from the investors so that they can expand their businesses and industries for economic growth.
• Economic Growth: Because of the businesses and industries, it can increase the production of goods and services in an economy. Due to the production it requires employee, labour etc. & generate employment which is also beneficial for our economic growth.

Features of Financial Market

• It act like as a intermediary: Financial market is a intermediary between the investor and the borrower to connect between them so that both can fulfill their reuirements like in case of borrower they need money to grow their business and on the other hand investor needs an great return for their wealth.
• Trade in securities: In a financial market the trade can be done in securities like bonds, shares, commodies, options etc. and much more.
• Deals in long and short term investment: In a financial market there are some scheme for long as well as for short term investment so that the investors can invest their money in these schemes to maximise their wealth.
• Rules and regulation of government: All the operations of financial market is controlled by the government with different-different rules & regulation so that no one can do the illegal activities in the market.
• Easy accessibility of information: Financial market allows investor to get quick and easy access to the information to secure transaction between the investor and borrower.

Classification of Financial Market: