Wednesday, 28 May 2008

Financial Markets - Introduction

The last time we met, I advocated your attention towards stocks. I mean if you start giving it a thought, you will certainly explore a lot of small things that matter on your own. All you need is to think in a rational manner towards realizing your goals.

Let me extend my helping hand a little further by offering you something on the Markets, types of risks involved and the kind of traders in the market.

A Market is a social arrangement where exchange of goods takes place between buyers and sellers. The market type we are interested in is Financial Markets.

Its a social arrangement because man is a social animal. Whenever humans interact or need to interact they form small social groups - the society may comprise of only 2 people, or may be 3. This brings us to the concept of market participants.

There could be buyers, sellers and intermediaries that can bring buyer and sellers together. Do you remember the last time you went for house hunting? You needed one desperately but you didn't know anyone in the town. So you went straight to an estate agent. He gave you a couple of options, and you visited those places, and eventually you got a rented accommodation. This is a simple example of a Market type. We can loosely refer to it as a Real Estate Market. You were the buyer, the agent was the intermediary and the house owner was the seller.

A Financial market comprises of the following:
  • People
    • Just like the previous example we have buyers - people in need, sellers - people with excess, and intermediaries - people who bring them closer.
    • Key agents who look to raise money through Financial markets are: Private Sector Institutions, Governments and Supranational Entities.
  • Products
    • These help to raise money, and the urge to trade.
  • Places
    • There must be some market place for the deal to be executed.

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