A financial market is an environment where individuals trade derivatives and financial securities in low transaction costs with the aim of making a profit. Some of these financial instruments are bonds and stocks, metals and gems, and some other financial commodities, which are calling assets in the financial markets. They represent a risk to the investor, and the amount of risk can be determined by the level of trading activity in a specific market.
There are many financial markets that exist, including futures, options on financial instruments, foreign exchange and commodity exchanges. Futures contracts are traded for the production or transfer of future goods or services. The two most popular futures contracts are those on agricultural products and energy. Futures contracts generally deliver cash early in a period of time or give the holder a right, but not an obligation, to buy or sell the product at a stated date in the future.
An option is an agreement or contract between two or more individuals. It gives the buyer the right, but not the obligation, to sell a particular security or note at a later date for a specific price. These are called derivatives in financial markets. Examples of derivatives are stocks, bonds and derivative instruments.
Traders purchase shares of stock from companies whose stocks they believe will increase in value. They then sell the shares when the prices rise. A call option gives the trader the right to purchase shares of stock for a fixed price within a specified period of time. It is also known as a puts option. If the price rises the trader will sell the option for a profit. It is usually exercised by financial institutions or large corporations.
Derivatives are financial markets in which an entity or a person becomes an item, such as a stock, bond, currency, or a variety of other items. Investors use derivatives to purchase or sell an item and protect themselves if the item loses value. They use these securities in order to protect their income if they should lose their investment. For example, investors use derivatives to protect themselves from fluctuations in the value of their stocks or bonds.
Commodity prices are influenced by factors such as weather and the economy. Financial markets generally do not have a long term impact on commodity prices, since the commodity prices are determined over short terms. Short term, the impact of financial markets on commodity prices comes from how they affect the prices of certain commodities, such as oil, gold, silver and corn. Financial markets generally do not directly influence commodity prices, since they do not allow the supply and demand of goods and services to be affected. Financial markets do indirectly influence commodity prices by influencing the foreign currencies that trade on the Forex market.
The foreign exchange market, or Forex for short, is one of the largest financial markets in the world. Each day, many financial assets are purchased and sold on the Forex exchange. Some common financial assets traded on the Forex exchange include: foreign currency, stocks, bonds, futures, currencies, interest rates, and a wide variety of other financial assets.
Many people use the services of financial professionals in order to help them acquire, buy, and sell financial assets. Many banks and other lending institutions offer various financial services on the Forex market. These services include the purchase and sale of foreign currency. Brokers provide assistance to investors on transactions and advise them on what types of deals might be profitable. Dealers often use financial products such as futures, options, and swaps to protect themselves from unexpected losses.