Financial market can be defined as a mean which helps people to trade financial securities, commodities and other products. Financial securities are the stocks and bonds. Commodities refer to valuable metals like gold, diamond.
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Financial market also supports trading of products which involves low transportation cost. In other words, financial market can be defined as an aggregation of buyers and sellers. The concept of financial market stared many years before. It has also gone through lots of improvements and innovative products such as derivative trading. Financial market comprises both general markets and commodity market.
In General market many of the commodities are traded while in specialized market a particular commodity is being traded. Gold market is a specific example of specialized market.
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Financial market has the following three main facilities:
- Provides opportunity for business people to raise funds for expanding their business or for setting up new business.
- Transferring risks.
- Facilitates currency exchanges. FOREX is a financial market of this kind.
Borrowers and lenders are the two main parties involved in financial market. The lender is the person who buys shares or securities of a company. Lenders either expect dividends from the borrowers or looks for a rise in the price value of the share so that he can transfer the share to other thus making profit out of it. Lenders can be individuals or companies.
There are many forms of investment a lender can offer. He can pay premium for his insurance plan, invest in shares of companies, deposit money in savings account of banks, etc. Companies which have large amount of money idle can also lend the money in the market expecting a high return. Borrowers are the person who accept money from the lenders and in turn delivers a security (either bond or share) to the lender. Borrowers can be individuals, government bodies and public corporations.
There are many types of financial markets available. Capital markets comprises of stock and bond market. This form of market is the most profit proven investment and this also has a considerable amount of risk involved. Commodity markets support commodity trading. Money markets facilitate financing and investing. Derivative markets for risk management. Insurance markets helps in redistribution of risks. Foreign exchange markets support currency exchanges.
Lots of analysis and research have been performed to study how the financial market varies with time. Most of the researchers tried to analyze what are the factors that determine the price of the products. The founder of Dow Jones & Company, Charles Dow published his ideas on the financial market. His ideas are now called ‘Dow Theory’.
This theory is considered as the basic for performing fundamental technical analysis for predicting the price of shares. There are also other theories with different suggestions. One of these kinds is random walk theory which states that the prices are not related to history. The last change is not related to the future value of that share. Rather than understanding those theories, investors can spend time in analyzing the market of their own with the advent of numerous software tools.
