In this article, we have shed light on the concept of financial markets by describing the money market and what it includes in financial tools for trading and investment, showing the types and differences between them, and showing how to benefit from financial markets by analyzing their movements. market derivatives.
The concept of financial markets
The definition of financial markets is not much different from the concept of the market as we know it, so financial markets refer to the place or entity where a seller and a buyer meet to conduct a transaction or transaction.
The seller has a desire to sell the commodity, so he offers to sell it at a price, and the buyer has the desire and the price to buy this commodity, so he makes the purchase order. In this case, the commodity is a security, and the role of the financial market, in this case, is to facilitate the process of buying or selling the security. The collateral can be shares, bonds, commercial papers, and others.
Thus, we can say that the definition of a financial market is a place or an entity in which there are bids and requests to buy and sell securities and this is done in a regulated and central market and through a specialized platform such as a stock market or in an unregulated market. market and we call it trading here commonly known as off-platform or OTC.
The stock market is a financial instrument prepared for trading by specific rules and regulations, where ownership of securities or financial assets of any kind or form is not always assumed for trading. Regulations.
The function and importance of financial markets
The importance of the role played by the financial markets lies in providing cash and liquidity for various commercial and economic activities and directing the funds accumulated after consumer spending on basic life products to the sectors that need these funds and using them in various investment channels.
The market performs this role through financial transactions related to the issuance of securities, offering them to the public for subscription, and then buying, selling, selling, or receiving orders.
Types of financial markets
The types of financial markets differ in the number of different financial instruments or trading methods traded in them. The most important types are:
The capital markets are divided into two parts the stock market and the bond market
The difference between stocks and bonds is that both are securities, that is, the shares are part of the equity of the company and the bond is part of the debt owed by the company.
That is, the share represents a share in the capital of a joint stock company and the shares are of equal value, indivisible by the owner, and can be negotiated commercially.
Bonds are valuable documents. This tool proves that the owner has loaned a certain amount to the company and guarantees the holder the right to claim the loan amount plus the interest accrued i.e. a written pledge of the loan amount to the company. It is given to the owner on a certain date in return for a certain interest.
Known as the forex market
The foreign exchange or forex market is the foreign exchange market and is the largest financial market in terms of trading volume and liquidity. By swapping one currency for another, buying currencies when they are at a low price, and selling them when they become at a high price.
commodity market
It is one of the oldest financial markets, and the sale of agricultural products was one of the oldest forms of commodity trading in the ancient stock markets. In this market, important commodities such as wheat, sugar, cocoa, gold, and oil are traded in the form of futures, forward contracts, forward contracts, or price options contracts. You can also trade speculative prices through spreads or contracts for difference.
Cryptocurrency market
This is a fairly new market that has emerged with the advent of cryptocurrencies as this market has enabled traders to trade new cryptocurrencies just as if they were trading regular currencies.
It has also been called a crypto-asset market, where its transactions and transfers are recorded in a private ledger that operates over the blockchain network.
financial market derivatives
Derivatives, or derivative markets, are contracts that derive their value from the value of the same assets through an underlying contract that allows the same asset to be traded in different ways to make a profit based on the price fluctuations of the same asset. Financial derivatives are available in all financial markets, stocks, bonds, currencies, or commodities and their purpose is to reduce the risk of price changes.
Derivatives are separate
spot market
It is the market in which the financial asset is traded at the current price during the day, even if the transaction takes a few minutes or more than a minute, this is considered instant as the transaction takes place at the current price.
Futures contracts
Commitment and playback contracts are not much different from future contracts for both parties to trade the financial instrument at a future date, as the spreads are regulated by legal standard contracts, and not by random amounts. regulatory agencies.
Option contracts
An option contract is a contract that gives the owner the right to buy or sell any type of financial asset for a specified period without any obligation, provided that the buyer pays the seller an initial deposit to obtain this right.
In this way, the contract is voluntary for the buyer - in the event of purchase, performance, or withdrawal and loss of deposit - and mandatory by the seller.
stock investment
Many people resort to investing in securities to increase income and wealth, and to avoid shortages of money due to inflation and other factors. In general, the purpose of investing is to earn a return or profit as a result of the trading or investment process in the short, medium, or long term, depending on the investor's view of the future of the asset being traded.
Investors in the financial markets can achieve returns through two things:
First, returns from current assets
In the stock market, profits can be taken from the shares owned through dividends received by the shareholder as a partner, which contributes to the profitability of the company.
Second: From the movement of the price of the traded asset
In the foreign exchange market (forex market), an investor or currency speculator can make a profit by buying currencies at a low price, holding them for some time, and then selling them at a higher price to make a profit, or by speculating. Prices using leverage and margin help him to get more returns through trading. Relatively smaller capital in a shorter time.
Financial Market Analysis
Before trading in the financial markets, you must have the ability to predict future price trends, as the success of your trades is predicted by the degree of your success in forecasting price movements, and here the role of the analysis appear.
There are two main types, with varying types and complexity of analysis:
Technical Analysis
It is the study of price movement or historical and current price data on charts, to predict future price trends without taking into account the reasons for that movement. Entering a sell position.
Fundamental, economic or financial analysis
It is the study of the economic, political, or financial factors of the government or company - based on the financial asset being traded - and determining the factors that affect the forces of supply and demand to update the prices of that asset, either positively or negatively. It is this effect that determines the direction of the prices of financial assets.
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Forex trading