These Are the Most Common Types of Financial Markets
- Capital
- Commodity
- Money
- Derivatives
- Cryptocurrency
Are you considering a career in finance? Are you looking to take more control over your retirement investments? It’s natural to wonder about the primary five types of financial markets. Understanding these markets requires some time because of their complexity and the fact that they go by different names. There is also a lot of jargon associated with these markets. And each type of market has its own vocabulary.
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Capital
Capital is an umbrella category. This type of market includes:
- stocks
- bonds
- mutual funds
Many Americans are familiar with the daily news reports about the “stock market.” This might refer to:
- the Dow Jones Industrial Average
- New York Stock Exchange
- the NASDAQ
The bond market includes:
- corporate bonds
- government bonds
- municipal bonds
- mortgage-backed bonds
- funding bonds
Governments, businesses, hedge funds and individuals can trade in the bond market. Mutual funds are like a condensing of the stock market. They give an individual or an investment group the ability to invest in a lot of stocks all at once.
Commodity
Commodity markets trade in:
- agricultural goods
- energy
- metals
Some of the agricultural commodities are:
- soybeans
- wheat
- cattle
The types of energy products traded include:
- oil
- gasoline
- natural gas
For metals, some commonly traded products include:
- gold
- silver
- platinum
In the case of the metals, it is actually a futures contract that is traded. There are about 50 commodity markets around the world, and more than 100 commodities are traded on them. Commodities markets have a lot of futures trading, and poor guesses on the part of the investors can take a big toll on a nation’s economy and the worldwide economy.
Money
Money markets provide short-term funds or loans. The maturity is one year or less. Some of the well-known money market products include:
- treasury bonds
- certificates of deposit
- bills of exchange
Because they mature so quickly, money markets provide investors with a high level of liquidity. This makes it easy for them to get their money out of the market and into some other type of investment or cash.
Derivatives
Derivatives are literally derived from other financial assets. They may be derived from futures or other assets. A derivative market is one of the most complex types of investment markets. Hedge fund investments in sub-prime mortgages were the cause of the Great Recession of 2008. This was a complicated financial situation in which banks made mortgage loans without the usual fact-checking. People could not afford the payments. Risky derivatives of those mortgage products caused a big drop in other investment markets.
Cryptocurrency
Cryptocurrency is a type of digital currency. There are more than 20 commonly traded digital coins. A cryptocurrency market facilitates the trading of these coins and the technology related to them. Cryptocurrencies have some volatility, and the actions of the business’s leadership often make a big impact on the value of the coin. The most commonly traded digital coin and the one with the highest value is Bitcoin. Its market capitalization is around 66 percent of the total value of all digital coins in the cryptocurrency market, explains the Coin Telegraph.
Concluding Thoughts
Becoming familiar with the different types of money and investment markets is important for anyone who wants to work in finance or a related field. It is also important for a person who wants more direct control over their investments. Knowing about these five types of financial markets is a good step forward for a person’s professional and financial future.
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