WHAT IS FINANCIAL MARKET?

A financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods. In economics, typically, the term market means the aggregate of possible buyers and sellers of a thing and the transactions between them.

Types of financial markets The financial markets can be divided into different subtypes:  Capital markets which consist of: o Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof. o Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof. Commodity markets, which facilitate the trading of commodities. Money markets, which provide short term debt financing and investment. Derivatives markets, which provide instruments for the management of financial risk. o Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market. Insurance markets, which facilitate the redistribution of various risks. Foreign exchange markets, which facilitate the trading of foreign exchange.

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The Capital markets consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities.

A stock market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. A share of stock (also referred to as equity share) means a share of ownership in a corporation (company). Types of stock Stock typically takes the form of shares of either common stock & preferred stock.   As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders. Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Shares of such stock are called "convertible preferred shares"

Function and purpose The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords

investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts. Types of commodities:    Bullion Metals Agri Commodity

Derivatives are financial contracts, or financial instruments, whose prices are derived from the price of something else (known as the underlying). The underlying price on which a derivative is based can be that of an asset (e.g., commodities, equities (stock), residential mortgages, commercial real estate, loans, bonds), an index (e.g., interest rates, exchange rates, stock market indices, consumer price index (CPI) — see inflation derivatives), or other items. Credit derivatives are based on loans, bonds or other forms of credit. The main types of derivatives are     Forwards, Futures, Options, Swaps.

Derivatives can be used to mitigate the risk of economic loss arising from changes in the value of the underlying. This activity is known as hedging. Alternatively, derivatives can be used by investors to take a risk and make a profit if the value of the underlying moves the way they expect (e.g. moves in a given direction, stays in or out of a specified range, reaches a certain level). This activity is known as speculation.

Indian equity market:
The Indian market of equities is transacted on the basis of two major stock indices, National Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange (BSE) BSE SENSEX: The Sensex is the leading measure for the Indian Stock Market. It is based on the 30 largest trading companies on the Bombay Stock Exchange BSE (India’s primary financial market). How is Sensex Measured? The Sensex is an aggregate of the value of the leading 30 companies. If these companies share prices rise, the Sensex will rise. However, the different companies will have a different weighting. In other words those companies with the biggest market capitalisation will have the largest weighting and impact on the Sensex. The National Stock Exchange of India Limited (NSE) is a Mumbai-based stock exchange. It is the second largest stock exchange in India in terms of daily turnover and number of trades, for both

equities and derivative trading. Which index represents this exchange called Nifty it is based on the 50 largest trading companies in the NSE Market terminology Buy price: when anyone willing to pay certain amount or cost for particular thing or stock. Sell price: when anyone willing to give particular thing or stock at certain amount or cost. Last price: The last price at which the stock traded. Bid: The current highest price per share that a buyer is willing to pay. Ask: The lowest asking price per share that a share holder is willing to sell for. Volume: The number of shares traded during the day. Security - This is the stock symbol of the company to be potentially purchased/sold. Order Type - For basic discount brokerages, there are typically 3 types of orders, Market, Limit and Stop.  Market Order: When a BUY market order is placed, the ask price is paid, kind of like the “buy it now”. Chances are that the order will get filled immediately but often at a higher price than the “last price”. If a SELL market order is placed, the same happens except the shares are sold at the bid price.

Limit Order: A limit order is where the price is specified in which to buy/sell the stock to avoid any surprises. The downside is waiting until a buyer/seller hits the limit price which may or may not happen.

Stop: This is a little more advanced where the stop price is set for either buying or selling. For example, a stop loss sell order is set to minimize the loss that a trader is willing to take. When the stop price is reached, a market order is sent out at that price. There are also variations to stops such as stop limit orders and various types of trailing stops. These are out of the scope of this article, but I may get into them another time.

Quantity - The number of shares to purchase/sell. Price - If a limit order is selected, this is the price at which the stock will be purchased/sold IF the market reaches the limit price. Lot size: While trading in Futures and Options, be it stock futures and options or commodity futures and options, you can only trade multiples of a fixed number called the LOT size of that contract. Every stock or commodity which is traded on the derivatives market has a LOT SIZE.

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