What Are the Financial Markets
What Are the Financial Markets
Financial markets are places—both physical and digital—where people buy and sell financial assets like stocks, bonds, currencies, and commodities. They help connect buyers with sellers and businesses with investors.
Think of financial markets as the engine that keeps the global economy moving
Main Functions of Financial Markets
Capital Raising – Companies raise money by issuing stocks or bonds.
Price Discovery – Market prices reflect what people are willing to pay.
Liquidity – Investors can easily buy or sell assets.
Risk Management – Through instruments like derivatives or hedging.
Efficient Allocation – Capital flows to the most promising businesses.
Types of Financial Markets (with Market Size)
| Market | Approx. Size | About | Example |
|---|---|---|---|
| Forex Market | $7.5 trillion/day | Global currency trading | EUR/USD, GBP/JPY |
| Stock Market | ~$100 billion/day | Shares of public companies traded | NYSE, NASDAQ |
| Bond Market | ~$130 trillion (global value) | Loans to governments or corporations | U.S. Treasury Bonds |
| Cryptocurrency | ~$50–100 billion/day | Digital currencies traded online | Bitcoin, Ethereum |
| Commodities | ~$20–25 billion/day | Gold, Crude Oil, Wheat | Physical goods like oil, gold, and wheat traded |
| Derivatives | >$600 trillion (notional value) | S&P 500 Futures, Oil Options | Contracts based on other assets (options, futures) |
Forex is the largest financial market in the world by daily trading volume.
Derivatives have the highest notional value, but Forex leads in actual daily activity.
Why important?
Financial markets affect your daily life—even if you don’t trade. They influence:
- Interest rates
- Inflation
- Retirement investment
- Job creation and economic growth
