Types of Financial Markets and Their Functions


What is Financial Market?

Financial Market is a place where Buying and Selling of shares, bonds, securities etc. take place. A financial market may be a physical location or a virtual one(i.e, Internet).

Prices of securities depend on the demand of the securities, if the demand of the security is high then the price will high if the demand will low then price will also low of the security.

The stock market is a financial market that connects buys and sellers. The financial markets are places where the savings from several sources are mobilized towards investment.

Four Functions of Financial Market

Bring Investment in Economy

Financial Market brings Investment in the economy and converts the saving into the investment. There are many financial instruments are available for transferring saving into investment.

Facilitates Price of Goods or Services

Price of any goods or services depends on the demand and supply of the products. if the demand for the products is high then the consumer will pay a high amount for it, if the demand for the product is low then the price of the product will also low. this concept is also implemented on the Financial system.

if the demand of the share high then Investors willing to pay a high amount of the share, if the demand for share low then Investors will not pay or buy the share. The financial market helps the investors in giving them the proper price of the share.

Financial Market Provides Liquidity to Financial Assets

Financial Market is the market where all the securities of buyers and sellers are available at all the time. this is the big reason behind that it provides liquidity to securities. That is mean that the investors can invest their money, whenever they want to, and it also implements on sellers that they can sell their securities whenever they want.

Reduces the Cost of Transactions

When the buyers or sellers buy or sell the securities it needs lots of information and time. The financial market helps to provide every type of information without spending any money. So, the financial market reduces the cost of the transactions.

Types of Financial Market

Stock Market

Stock Market is the market where companies sell their ownership to the public and provide them equity in the company. Companies offers a price of the share to the public and public buy shares in the Financial market.

Bond Market

Bond market is the market where companies provide opportunities to the investors and government to secure their money in any project of the company. In the bond market, investors buy the bond to the company, and the company provides right on their investment.

Derivatives Market

Derivatives market provides an instrument that helps the investors to control their financial risk. The derivatives market is the financial market which gives the assuration to investors of their future assests, that they will buy in future.

Commodities Market

Commodities Market is a market where traders and investors buy and sell natural resources i.e, corn, oil, meat, and gold. This is most trusted and worthful market for any economy, because it gives physical assests to the economy.

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