Types of financial markets


The types of financial markets refer to the different financial markets where financial products or instruments, called financial assets, are exchanged.

Financial markets are one type of market, along with the consumer product market, the consumer product market, the service market, and the industrial product market.

In this article we are going to analyze the types of financial markets in detail, but to see the market rates in a more global way we have added the following link:

See market types

Financial markets share the same characteristic among them and that is that they are physical or virtual spaces where financial assets are exchanged between economic agents and in which the prices of said assets are defined.

Simple classification

There are several types of financial markets. A basic way to separate them is based on the investment time:

  • Money market: Short-term financial assets are exchanged (less than 12-18 months).
  • Capital market: Longer-term financial assets are exchanged. Equity, fixed income and financial derivatives markets belong to this type of market.

Ranking of the most important financial markets

A more complete classification of the types of financial markets is the following and that we will see in more detail later:

  1. Money market.
  2. Capital market. Within the capital market are these two markets: fixed income markets and equity markets.
  3. Financial derivatives market. They are in turn divided into:
    • Organized markets: They are standardized and controlled by a clearing house. Inside we find mainly the financial futures market and the financial options market.
    • Unorganized markets (OTC).
  4. Financial market of raw materials (commodities).
  5. Currency market (Forex market).
  6. Spot market.
  7. Insurance market.
  8. Interbank market. Although it is generally integrated within the money market, due to its size and importance, it is sometimes classified as another separate financial market.
  9. Cryptocurrency market.

Let's see the types of financial markets in more detail:

1. Money market

The money market is the set of wholesale markets where short-term financial assets are exchanged. Its participants are large institutions and specialized financial intermediaries.

In turn, we can divide the money market into three:

  • Interbank money markets: In this market, financial institutions carry out loan and credit operations through interbank deposits, short-term derivatives (FRAs), short-term interest rate swaps or other financial assets, generally maturing in one day or one week. .
  • Business asset market: In this market, business notes stand out, whose debt instruments are issued by short-term companies and incorporate a payment obligation (whose payment guarantee is themselves). It is therefore a form of business financing.
  • Public debt money market: This market is where the short-term public debt issued by the Treasury of a country, known as treasury bills, is traded. To do this, the Treasury issues a series of annual auctions, prior notification of the calendar. The most well-known treasury bills are those of the United States, called t-bills (treasury bills).

2. Capital market

The capital market is the one to which market agents go to finance themselves in the medium and long term (greater than 12 or 18 months). By trading longer-term assets than in the money market, you incorporate greater risk.

We can divide it into two types of markets:

  • Fixed income market: Fixed income securities (bonds, bills, etc.) are traded, and therefore their holder is a creditor of the issuing company. This is why it is also known as the credit market.
  • Variable income market: Shares are traded, this market is popularly known as the stock market. For this, companies that are listed on the stock market divide their capital into parts and that is what they call shares (shares in the capital of the company).
  • Financial derivatives market: These are derivative markets where financial products are traded that have another type of asset as their underlying, either financial (shares for example) or non-financial (raw materials for example). Therefore, derivatives can have as underlying assets as different assets as a stock, a bond, an interest rate or a commodity. Being such a wide market and with such a variety of products, they are sometimes classified separately from the capital markets.

3. Derivatives market

As we mentioned, the financial derivatives market is an extremely broad market. That is why it is sometimes integrated into the capital market, mainly capital market derivatives, such as derivatives on stocks or bonds.

However, some derivatives markets are even classified separately from the derivatives market, such as the commodities market or the currency market for example, given their importance and enormous size.

That said, we can classify derivatives markets mainly into two types according to their regulation:

  • Organized markets: They are standardized and controlled by a clearing house. Inside we find mainly the financial futures market and the financial options market.
  • Unorganized markets (OTC): It is a market that has no regulation where investors bilaterally agree on their transactions through netting and collateral agreements with the counterparty. The main types of OTC derivatives are swaps and forwards, within which the currency market (forex) is integrated.

In the following table we have made a diagram of financial derivatives, in which we can see the different products classified according to their respective underlying assets, market rates and type of derivative:

MarketregulatedMarket OTC
Underlying assetFuturesChoicesSwapForwardChoicesCFD’s
Stock indexFuture on the IBEXOption on the future value of the IBEXEquity swapBack-to-backn / aCFD »s on Indices
Type of interestFuture EuriborOption on future EuriborInterest Rate swap (IRS)Forward Rate Agreement (FRA)Interest Rate Cap and Floor
Basis swap
n / a
BondsFuture on bondsOption on bondsAsset swapRepurchase agreementOption on bondsn / a
ActionsFuture on stocksStock optionEquity swapRepurchase agreementStock
Option Warrant
Turbo Warrants
CFD »s on Shares
FOREXFuture FXOption on FX futureCurrency swapFX forwardFX optionCFDs on currencies
Raw MaterialsCommodity futuresCFDs on commodities
Credit riskn / aCredit default swap (CDS)n / aCredit default optionn / a

4. Financial market for raw materials

The commodities market is classified as a different type of financial market because it is a very large market.

On the one hand, there is a spot market for raw materials, that is, it is not a financial market, but rather a physical market.

The financial commodity market is really a financial derivatives market. In this market there are a large number of organized markets for raw materials, such as financial futures on gold, oil, copper, silver, wheat, platinum, coffee, orange juice, cocoa, sugar or even pork tripe.

The main regulated financial market for commodities in the world is the Chicago market.

There are also OTC financial markets for raw materials, where each counterparty negotiates on its own agreements for the exchange of raw materials in the future.

5. Foreign exchange market (forex)

The foreign exchange market, like the commodities market, also has a spot market, which is any foreign exchange transaction within a period of less than two days.

In the financial currency market, the products that are traded are some currencies against others, which are exchanged at a price known as the exchange rate, with a delivery of more than two days.

6. Spot market

As we saw in the commodities market and the foreign exchange market, the spot market really brings together any operation in which after the agreement the delivery of the product is expected at the same time, or at most after two days. It is also known as the spot market.

7. Insurance market

It is that market in which an insured and an insurer reach an agreement to protect the insured or a third party against a potential risk.

The insurance policy is an independent commercial contract, in which all the general and particular conditions that will govern the insurance contract are collected.

8. Interbank market

As we mentioned at the beginning, within the types of financial markets, the interbank market is considered a money market, however, given its great importance and size, it is sometimes classified as an independent market.

In this market, financial institutions carry out loan and credit operations through interbank deposits, short-term derivatives (FRAs), short-term interest rate swaps or other financial assets, generally with a maturity of one day or one week.

9. Cryptocurrency market

It is the market in which cryptocurrencies are traded.

Tags:  finance economic-dictionary ranking 

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