What are the financial markets?

A financial market is a type of marketplace where you can trade/invest various stocks, currency, bond, derivatives. Such markets give you an opportunity to grow your capital by trading/investing.

What are the different types of financial markets?

Stock Market:

Stock market trading is basically ownership of public companies. Each & every stock/share comes with a particular price, and a trader/investors make money out of his/her investments when their stocks perform well in the stock market. It is very easy to buy/sell stocks but the real challenge is choosing the right stocks and decide when to buy/sell them.

For example- Price of XYZ stock is 100$ today & you think that XYZ is a very good company and the price of XYZ may go up in future so you bought 2 XYZ stock at 100$ and price of XYZ goes up to 150$ within one month.

Commodities market:

The commodities market is where a trader or investors can buy or sell various commodities such as Oil, meat, corn, gold & silver etc. A different market is created for trading or investing in commodities because of the price predictions or trade ideas on the commodity market is a bit different than the stock markets.

Forex Market:

Forex market is where you can trade foreign currency pairs such as EUR-USD, GBP-USD etc. Forex traders mostly use high leverage to make a profit out of small fluctuations.

Cryptocurrency Market:

The cryptocurrency market is all about trading/investing digital currencies like Bitcoin. It is almost same as other markets but the volatility is very high on this market. So risk and reward both are higher than any other markets. One needs to do a lot of research before investing/trading crypto because most of the time there is high market manipulation on this market.

Bond Market:

Bond market or debt market where investors can trade govt or corporate-issued debt securities. Govt usually raise funds through bonds to pay debts or infrastructural development, private companies issue bonds when they need money mostly for business growth projects.

What is the best market for Trading?

A trader mostly looks for volatility in the market to make profit so there are markets which are highly volatile and less volatile. High volatility increases the chances of risk as well as reward.

Beginner:

If you are a complete beginner into trading then you should always look for less volatile markets because high volatility increases the chance of risk as well as reward. So according to us, the stock market should be your first preference when it comes to beginner level trading. You should prefer not to use the leverage while trading stock market as a beginner level trader. Also start with a low amount of money which you can afford to lose.

Intermediate:

If you got 1-1.5 years of trading experience from stock market trading and you are doing pretty good there then you can start trading stock market indexes like S&P500, Nikkei, Shanghai index etc. You should use low leverage when trading these indexes. Try to use the profit you got from stock trading previously to make sure you don’t lose too much from your own pocket.

Advanced:

Finally, after getting enough experience from trading if you are still earning pretty decent returns. You should look forward to trade other markets like forex, commodities & cryptocurrencies, you can try leverage trading on these markets. Still, we would recommend not to use high leverage in any kind of trading. High leverage traders mostly end up making high gain within short time period at first then lose it all within a few days/weeks.

Shashi (Prachi)

Shashi (Prachi)

Smile it let your teeth breath Equity Research Analyst at HDFC Mutual Fund ll Portfolio Management ll Wealth Management ll CFA Level 1 Candidate

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