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Financial markets are the places where individuals and firms trade assets such as stocks, bonds, commodities, and derivatives. The prices of all investments are derived from the offers and bids different investors make for them in markets.
A Guide to Financial Markets
Frequently Asked Questions
Why is the market down today?
Markets never move for just one reason, so there can never be just one answer to this question, and the answer will always vary from day to day. However, there are several factors including newly released corporate earnings data, changes in government policy, or news about the state of the economy that are common causes for moves in the market.
Learn MoreFactors That Cause the Market to Go Up and Down
What are the different kinds of financial markets?
The most common financial markets that most investors will interact with are stock markets and bond markets, as these investments will usually form the basis for most portfolios. However, there are several other types of financial markets that deal in more complex financial products called derivatives such as commodities, foreign exchange (FOREX), and options markets.
Learn MoreWhat Are Some Examples of Financial Markets and Their Roles?
What is the difference between capital markets and stock markets?
The stock market specifically refers to markets where individuals and institutions trade partial ownership of a company called shares of stock in that company. Capital markets refer to a group of markets where companies can raise money including the stock market, but also the bond market, where investors can buy portions of a company’s debt called bonds, as well as other, more complex investments such as options and futures.
Learn MoreCapital Market vs. Stock Market: What's the Difference?
What is the difference between primary and secondary markets?
Primary markets are any market in which new stocks, bonds, or other types of investment are sold for the first time. A common example is an initial public offering (IPO), when a company first sells stock. Secondary markets are where existing investments are sold once someone had purchased them from the original seller. When people think of “the stock market,” or “the bond market” they usually are thinking of the secondary market for those investments.
Learn MoreUnderstanding Primary vs. Secondary Capital Markets
Key Terms
Financial Markets
A financial market is any place or system that people use to trade investments such as stocks, bonds, or commodities. The price of assets in markets are determined by the bids and offers that market participants make for them.
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Black Swan
A black swan is an event that is both extremely rare and hard to predict, but also has extremely large consequences in financial markets. The term was popularized by Nassim Nicholas Taleb in his book of The Black Swan
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Market Maker
A market maker is a person or firm who helps match buyers and sellers in a financial market by providing price and order size information. Market makers make a profit from the difference between the bid price for an investment, and the asking price, known as the bid-ask spread.
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Bubble
A bubble is a phenomenon in which asset prices rise very rapidly, often unrelated to any change in fundamental factors ofthe asset. This rise is followed by a similarly rapid decrease in value.
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Efficient Market Hypothesis (EMH)
The efficient market hypothesis states that markets can effectively internalize all available information, so security prices always reflect all available information. This means that it is impossible to create a strategy to consistently beat the market. There are different versions of the EMH which argue for greater or lesser market efficiency.
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Exchange
An exchange is a formal, usually regulated, financial market that helps individuals and firms trade investments. Examples of exchanges include the New York Stock Exchange (NYSE) and the Nasdaq.
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Standard & Poor's (S&P)
Standard & Poors, currently known as S&P Global, is a financial services company. In addition to being a credit rating agency and source for financial information, the S&P is a provider of market indexes, most famously, the S&P 500.
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Market Depth
Market depth is the ability for individuals or firms to buy or sell large amounts of securities without significantly changing the price of the security. The larger amount an investor can trade without significantly impacting the price of the security they are trading, the more depth the market has.
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S&P Global. “Capabilities.”
