The financial market is a space in which the buying and selling of financial assets is authorised. When speaking of financial assets, you can refer generally to financial instruments (such as shares, bonds, derivatives or ETFs) as well as other investment categories such as commodities or precious metals.
The trading venue of financial markets was once represented exclusively by physical entities such as a bank counter or a financial advisor. Thanks to the increasing adoption of the Internet, it has also taken hold online through brokers or exchanges.
The performance of financial markets is governed by the law of supply and demand, as for any market.
In this case, the demand is made up of investors who wish to enter a market by buying financial instruments and securities, while the supply is made up of all entities that issue financial instruments to obtain capital and liquidity or investors who wish to exit the financial market by selling their securities.
Of course, the financial market is not unique and universal. There are different types of financial markets.
In general, a first distinction is made between primary and secondary markets:
- In primary markets, instruments and assets are placed on the market directly by companies or institutions on an ‘exclusive’ basis. Generally, public sales campaigns such as IPOs (Initial Public Offerings) are used to launch new financial instruments on the market.
- Secondary markets regulate the buying and selling of financial instruments between investors without directly involving the issuing company. OpenSea, for instance, gives the possibility to buy and sell NFTs already placed on the market (Non-Fungible Token) and thus already owned by its first buyer.
Some forms of markets are also unregulated and take place mainly online. This is the case with over-the-counter markets, represented for instance by the Forex market, the Nasdaq and in some cases cryptocurrencies. This form of buying and selling is often more direct and personalised, as it is carried out through price negotiations between a client and a broker and because it allows buying or selling outside standard limits, e.g. in terms of amounts or time limitations.