What are the Different Types of Financial Markets?
OTC Markets: An OTC or Over-the-Counter market is a decentralized one. It does not have a physical location and the trading is done electronically. The market participants trade in securities without a broker. This market handles the exchange of publicly trades shares, which are not listed on the NASDAQ, NYSE, and The American Stock Exchange. The companies trading on OTC markets are lesser compared to those trading on primary markets.
Bond Markets: Bonds are securities that investors loan money at a pre-determined interest rate and for a specific period. It is an agreement between the borrower and the lender containing the details of a loan including its payments. The bonds are issued by municipalities, states, and governments to finance operations and projects.
Money Markets: The money markets trade in products that have short-term maturities and they are highly safe with a low- interest return rate. The money market includes money market mutual funds that are purchased by investors. Individuals can invest in a money market by purchasing certificates of deposits, or treasury bills.
Derivatives Market: Derivatives are contracts between two or more people and their value is based on the underlying assets. They are secondary securities and their value is derived solely from the primary security’s value. The derivates markets trade-in options and futures contracts and advanced financial products like commodities, bonds, interest rates, currencies, market indices, and stocks.
Forex Market: The foreign exchange or forex market is a market wherein the participants can purchase, sell, speculate, and exchange on currencies. It is a highly liquid market because cash is the highest liquid of all assets. In the OTC markets, a forex market is decentralized and has a network of brokers and computers. The forex market consists of commercial companies, banks, hedge funds, investment firms, investors, and forex brokers.
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