Loading the player...

What is the 'Financial Market'

The financial market is a broad term describing any marketplace where trading of securities including equities, bonds, currencies and derivatives occurs. Although some financial markets are very small with little activity, some financial markets including the New York Stock Exchange (NYSE) and the forex markets trade trillions of dollars of securities daily.

BREAKING DOWN 'Financial Market'

Financial market prices may not indicate the true intrinsic value of a stock due to macroeconomic forces like taxes. In addition, the prices of securities are heavily reliant on informational transparency by the issuing company to ensure efficient and appropriate prices are set by the market.

Stock Market

The stock market is a financial market that enables investors to buy and sell shares of publicly traded companies. The primary stock market is where new issues of stocks are first offered. Any subsequent trading of stock securities occurs in the secondary market.

Over-The-Counter Market

The over-the-counter (OTC) market is an example of a secondary market. An OTC market handles the exchanging of public stocks not listed on the NASDAQ, New York Stock Exchange, or American Stock Exchange. Companies with stocks trading on the OTC market are usually smaller organizations as this financial market require less regulation is less expensive to be traded on.

Bond Markets

A bond is a security in which an investor loans money for a defined period of time at a pre-established rate of interest. Bonds are not only issued by corporations but may also be issued by municipalities, states and federal governments from around the world. Also referred to as the debt, credit or fixed-income market, the bond market also sells securities such as notes and bills issued from the United States Treasury.

Money Market

A money market is a portion of the financial market that trades highly liquid and short-term maturities. The intention of the money market is for short-term borrowing and lending of securities with a maturity typically less than one year. This financial market trades certificates of deposit, banker’s acceptances, certain bills, notes and commercial paper.

Derivatives Market

The derivatives market is a financial market that trades securities that derive its value from its underlying asset. The value of a derivative contract is determined by the market price of the underlying item. This financial market trades derivatives including forward contracts, futures, options, swaps and contracts-for-difference.

Forex Market

The forex market is a financial market where currencies are traded. This financial market is the most liquid market in the world as cash is the most liquid of assets. The inter-bank market is the financial system that trades currency between banks.

RELATED TERMS
  1. Derivative

    A derivative is a security with a price that is dependent upon ...
  2. Underlying Security

    An underlying security is a stock, bond, currency or commodity ...
  3. Over-The-Counter - OTC

    Over-The-Counter (or OTC) trades securities that are listed off ...
  4. Underlying Option Security

    An underlying option security is the financial instrument on ...
  5. Marketable Securities

    Marketable securities are liquid financial instruments that can ...
  6. Sell Side

    The part of the financial industry involved with the creation, ...
Related Articles
  1. Investing

    Financial markets: Capital vs. Money Markets

    There are several key differences between capital markets and money markets as components of financial markets. Check out the similarities and differences between the two markets.
  2. Trading

    Derivatives 101

    A derivative investment is one in which the investor does not own the underlying asset, but instead bets on the asset’s price movement with another party.
  3. Personal Finance

    Careers in the Derivatives Market

    The growing interest in and complexity of derivatives means opportunities for job seekers.
  4. Financial Advisor

    A Fresh Look At The Financial Markets

    Different markets provide unique opportunities and risks for investors. Find out more here.
  5. Investing

    Complex Derivatives Made Simple

    Many ETFs hold derivatives. Here's how to be sure if you own a derivatives-based ETF.
  6. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
  7. Trading

    The Currency Market Information Edge

    Unique features of the forex market may allow larger players to get a jump on smaller ones.
RELATED FAQS
  1. Why is over the counter (OTC) bond in secondary market good?

    Unlike stocks, most bonds are traded over the counter (OTC) in secondary market rather than through exchanges due to their ... Read Answer >>
  2. What is the difference between the bond market and the stock market?

    The bond market is where investors go to trade debt securities, while the stock market is where investors trade equity securities ... Read Answer >>
  3. How big is the derivatives market?

    Examine the potential size of the total derivatives market, and learn how different calculations can reduce the estimate ... Read Answer >>
  4. What is the difference between derivatives and options?

    Learn how options are one type of derivative and how equity options derive their value from a stock, and understand other ... Read Answer >>
Hot Definitions
  1. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  2. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  3. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  5. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  6. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
Trading Center