Financial assets are traded in a financial market, which can be either physical or virtual. In order to maximise efficiency and transparency, it aims to direct the savings of families and other investors toward the investment of firms or public finance.
Until recently, financial market activity was limited to specified locations where purchase and sale orders could be placed and executed. New technologies have made it easier to conduct business in the markets via telematic platforms, such as via mobile devices or directly from a computer.Financial markets are tightly controlled and monitored by central banks and other regulatory authorities, such as the Bank of Spain and the National Market Commission. de Valores (CNMV).
Financial Markets Are Divided Into Two Categories:
The primary market, or issue market, is where traded securities are first put on the market for sale. This market is where, for example, public debt securities or corporate bonds are offered.The market where the primary market’s assets are bought and sold in the secondary market. Some securities are exchanged in real time, such as business shares, fixed income instruments, or derivative products such as options, in the secondary market known as the stock market.
What Is The Purpose Of The Financial Sector?
Financial markets operate in the same way as any other. The price is generated as a result of the convergence of supply and demand, and both savings providers and applicants participate in it. At the very least, markets provide four primary purposes:
- Bringing people who want to sell an asset together with those who want to purchase it.
- Set the price of the asset in accordance with the supply and demand.
- Provide financial assets with access to money.
- Reduce the time and costs of intermediation, allowing for greater asset movement.
- Recommend efficient use of resources to eliminate intermediation costs and timelines so that applicants and bidders can quickly communicate.
- Financial markets have specific characteristics.
- There are a number of features that can be used to identify financial markets.
The financial markets are transparent in the sense that any investor can quickly and readily access all the information they need about the assets that are part of the market.The bigger the volume of assets traded and the number of investors, the greater the amplitude of a financial market.It is possible to buy or sell assets with no barriers to entry.The bigger the quantity of buy and sell orders, the greater the depth of the market.The ability to respond swiftly to a purchase and sell order is a sign of a market’s flexibility.In other words, there are no taxes, interest rate changes, or inflationary pressures.
Financial markets are known for their volatility.Financial markets allow for the development of prices, which are determined by supply and demand. Investors’ expectations of future returns influence the price of assets, which can make them more or less expensive in the future.
Prices are quite steady in most cases. However, in the present COVID-19 issue, prices have risen and fallen dramatically due to uncertainty. There are times when markets are described as volatile or suffering a lot of volatility.
Throughout the history of financial markets, volatility has always been there, and it serves as a gauge of the risk associated with those markets. As the financial asset’s volatility rises, so does the risk of a potential loss.
