Trading financial markets – explained

Juliet D'cruz

Updated on:

Financial markets are where supply and demand for long-term capital meet through different investment vehicles: stocks, bonds, etc. To a large extent, these markets allow the financing of the world economy. There are several types of financial markets, and you can access them and start trading from wherever you are, thanks to the online trading platforms. Let’s see what types of financial markets are out there and how to start trading on them.

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The main types of financial markets:

  • The equity market where companies raise capital through a public offering to finance their growth.
  • The bond market where the state, banks, companies, and local authorities borrow medium-and long-term capital.
  • The money market where institutional investors (banks, etc.) lend money to each other and in the short term.
  • The derivatives market (options, swaps, CDOs, etc.) is primarily intended to hedge stock market positions and speculative purposes.
  • The foreign exchange market (FOREX) on which currencies are traded in pairs (e.g., euro against the dollar), a juggernaut that represents more than 5 trillion dollars in daily transactions.

How to start trading on financial markets

Trading financial markets are accessible to ordinary people thanks to the emergence of the Internet and online trading platforms. Just two decades ago, that wasn’t possible when trading equities, derivatives, or Forex was only for big players, banks, and institutions. 

If you want to start trading, you will have to open a trading account using the trading platform of a trading intermediary, which is a broker. There are various types of brokers depending on their trading process and the assets offered.

However, most usually, you will stumble upon the Forex brokers, which besides trading currency, offer trading stocks, commodities, or even cryptocurrencies. 

Pick the one that suits you best. But make sure to read broker review and find out if the company is regulated and transparent in its business. By picking the right trading platform, you are shield from many adversities and unnecessary risk. 

The cryptocurrency market

The creation of cryptocurrencies during the global economic crisis 2008 represented an act of rebellion. Based on a decentralized blockchain technology system, the new crypto market calls for more transparency and independence from official financial authorities.

Despite many controversies, the market is booming and represents a new type of safe-haven asset for many investors. 

In case you are eager to try crypto trading, the excellent starting point is learning about the basics of blockchain technology, the way the crypto market works, starting from digital wallets to the most promising cryptos at this moment.

You can open an account with a Forex broker or a specialized crypto broker. Anyway, make sure the company operates legally and has a good reputation.

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The risks of trading

As with any business activity, the financial trading instrument can present a certain risk. On the one hand, it’s due to market volatility. On the other hand, it is linked to excessive use of leverage. Leverage is the ability to increase exposure to a financial market using borrowed capital. 

There is also the risk of fraud. With the Internet, there are many unregulated trading platforms. That’s why the financial regulatory bodies create a blacklist of unregulated trading platforms. And finally, there is the risk of addiction as in gambling.

Invest in trading education

If you want to avoid scams, it is advisable that you learn about the basics of trading. To select a first training course, you need to look for an honest trading intermediary that can talk about the main concepts of trading and the opportunities and risks. 

Note that it is unnecessary to spend large sums for a first trading training. Usually, good brokerage companies enable beginners to try trading on a demo and learn from free educational resources.

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