Types of Financial Markets
Financial markets are of many types, including general and specialized; capital and money; and primary and secondary. Read this section to learn about capital and financial markets, including topics like capital, technological change, and financial capital.
Key points
- A financial market is an aggregate of possible buyers and sellers of financial securities, commodities, and other fungible items, as well as the transactions between them.
- The term "financial markets" is often used to refer solely to the markets that are used to raise finance: for long-term finance, capital markets are used; for short-term finance (maturity up to one year), money markets are used.
- Stock markets and bond markets are two types of capital markets that provide financing through the issuing of shares of stock or the issuing of bonds, respectively. A key division within the capital markets is between the primary markets and secondary markets.
- While capital markets and money markets constitute the narrower definition of financial markets, other markets, such as derivatives and currency markets, are often included in the more general sense of the word.
Terms
capital Money and wealth; the means to acquire goods and services, especially in a non-barter system.
fungible Able to be substituted for something of equal value or utility; interchangeable, exchangeable, replaceable
derivative A financial instrument whose value depends on the valuation of an underlying asset; such as a warrant, an option, etc.
maturity Date when payment is due.
Types of financial markets
A financial market is an aggregate of possible buyers and sellers of financial securities, commodities, and other fungible items, as well as the transactions between them. Examples of financial markets include capital markets, derivative markets, money markets, and currency markets. There are many different ways to divide and classify financial markets: for example, into general markets and specialized markets, capital markets and money markets, and primary and secondary markets.
Within the financial sector, the term "financial markets" is often used to refer solely to the markets that are used to raise finance:
- for long-term finance, capital markets are used
- for short-term finance (maturity up to one year), money markets are used.
Stock markets and bond markets are two types of capital markets that provide financing through the issuing of shares of stock and the issuing of bonds, respectively. A key division within the capital markets is between the primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets, such as during initial public offerings. Secondary markets are for the secondary trade of securities, providing a continuous and regular market for the buying and selling of securities.
The New York Stock Exchange
The New York Stock Exchange (NYSE) is an exchange enabling a financial market.
While capital markets and money markets constitute the narrower definition of financial markets, other markets are often included in the more general sense of the word. The derivatives market is the financial market for derivatives-- financial instruments like futures contracts or options-- which are derived from other forms of assets. Currency markets, enabled by foreign exchange (or forex) markets enable currency conversion and determine the relative value of world currencies.
Source: Boundless. “Types of Financial Markets.” Boundless Finance. Boundless, 21 Jul. 2015. Retrieved 26 Oct. 2015 from https://www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-the-field-and-goals-of-financial-management-1/financial-markets-30/types-of-financial-markets-172-3839/
