A financial market is a huge term that describes any marketplace where sellers and buyers take part in the trade of assets such as bonds, equities, derivatives and currencies. Financial markets are usually defined by clear pricing, basic regulations on costs, trading, and fees, and market forces. Financial markets can be found in almost every nation across the world. While some are very small, with only a few members, others trade trillions of dollars every day.
Tup Ingram explains how one can make profit through financial market
Financial markets help government corporations, individuals, and institutions to increase capital. Most of these types of transactions occur within capital markets that deal with the trade and sale of bonds and stocks.
Tup Ingram, a leading investor and one of the most successful financiers say that even though there are a large number of components available in a financial market, two of the most popularly used are capital markets and money markets.
Money markets are mostly used by corporate entities and government as a means for lending and borrowing in the short term, typically for assets being held for up to a year. On the other hand, capital markets are more often used for long-term assets, which are those with maturities of more than a year.
Together, capital markets and money markets include a large portion of the financial market and are often used jointly to manage liquidity and risks for governments, companies, and individuals.
This is perhaps the most extensively followed market. Both the bond and stock markets are followed closely, and their day-to-day actions are investigated as proxies for the general financial condition of the world markets. Consequently, the institutions operating in capital markets such as commercial banks, stock exchanges, and all kinds of companies, including non-bank institutions such as mortgage banks and insurance companies are thoroughly inspected.
Capital markets are often termed as risky markets and are not typically used to invest short-term funds. Most of the investors access the capital markets to save for education or retirement, as long as the investors have long time limits.
Tup Ingram rightly says that the money market is often retrieved together with the capital markets. While investors are eager to take on more risk to invest in capital markets, money markets are a good option available as they allow investing funds that are required in a shorter time period typically a year or less. The common instruments that are used in the money markets consist of collateral loans, deposits, bills of exchange and acceptances. Institutions functioning in money markets are commercial banks, acceptance houses and central banks.
Investors use money markets to invest funds in a safe manner as money markets are considered low risk. This is ideal especially for those individuals who are living on a fixed income because of the safety associated with these types of investments.
Thus, it can be said that money markets offer safer assets while capital markets offer higher-risk investments. On the other hand capital markets offer greater returns while money market returns are often low but stable.