What are the financial markets?
Just like any other form of market, financial markets are where buyers and sellers come to trade. They are often physical locations where traders meet to exchange a certain type of asset, e.g.:
- Shares at the London Stock Exchange (LSE)
- Commodities at the Chicago Mercantile Exchange (CME)
But they can also be electronic systems, such as:
- The NASDAQ stock exchange
- The forex market (essentially a network of large banks and currency providers)
Financial markets enable traders to exchange assets quickly and easily because all buyers and sellers are in the same place – sometimes literally, sometimes electronically, sometimes both.
They also tend to have very strict rules and regulations, which helps to reduce fraud and illegal activity. For example, if you wanted to purchase some cotton on a regulated commodity exchange, you could buy it without needing to inspect it, safe in the knowledge it had been through a number of quality checks beforehand.
Did you know? Despite the number and variety of different financial markets, when people refer to ‘the market,’ they’re usually talking about the value of stocks and shares. If the market has ‘gone up,’ then on average shares are performing well. This is because share trading is the most widely known and understood method of participating in the financial markets.
Lesson summary
- Financial trading is the buying and selling of financial instruments.
- There are many types of financial assets, including shares, indices, forex, and commodities.
- Most of the time, financial traders don’t want or need the assets – they trade to make a profit.
- Financial markets are where buyers and sellers come to trade.
- The markets are regulated to reduce fraud, keep transaction costs low, and improve efficiency.
