Financial Markets

A financial market is not a tangible entity, rather it is a mechanism that allows people to buy and sell items of financial value. There are lots of different types of financial markets. Examples include:Capital Markets trade “securities”, which are divisible into “equities” (shares) and “debt” (moneylent to organisations):∟ Stock Markets trade shares in companies (also called common stock). The shareholdershave the right to vote on corporate policy, elect board members and receive a share in thecompany’s profit (dividends).

Bond Markets trade bonds, which are a type of loan. The bond issuer (companies or governments) owes the holder a debt to be repaid with interest at a later date.Commodity Markets trade livestock, meat, grain, energy, petrochemicals, metals and otherminerals and materials. Commodities are broadly defined as the raw materials that humans use tocreate a liveable world.Money Markets trade money or credit on a short-term basis (typically between 1 day and 13months). Items include car loans, credit card receivables and mortgages.Insurance Markets trade non-financial risk such as theft, fire, loss, accident and health insurance etc.

Foreign Exchange (FX) Markets trade foreign currency.The prices of all these assets rise and fall continually. Changing prices are governed by numerous real-world factors and the constant movement of prices creates Risk. There are many different types of risk such as:Equity Risk – share prices may go up or down! You may lose money due to falling share values Commodity Risk – you may lose money due to changing goods valuesCurrency Risk – currency movements may affect the value of money you hold in another currencyInterest Rate Risk – investments held at a fixed interest rate may lose value if interest rates riseLiquidity Risk – you may struggle to sell assets if there is a shortage of buyersCredit Risk – you may lose money if a debtor cannot repay your loan, or your employer cannotpay your wagesOperational Risk – you may lose money due to poor business decisions, internal processes or external events.• QA Manager • Technical Director • Systems Manager • Business Development Manager .

Many risks can be traded just like any other item. Buying and selling risk allows investors to fine-tune the amount of risk they are exposed to. This is done by trading derivative contracts on the Derivatives Market.Derivatives are financial instruments whose value is dependent on (derived from) the value of another asset such as: Commodities (property, freight, credit, energy, agricultural goods etc), Securities (equities and bonds), Interest Rates, Exchange Rates, Indices (stock market index or consumer price index)