introduction to the financial markets in this video you will learn what is trading the forex market the equity market the commodities market and the derivatives market the origins of trading date back to prehistoric times it's been there ever since man started painting symbols on cave walls and realize that in exchange for an arrowhead he could get paint some 10,000 years BC exchanging cacao leaves for shiny stones was as common as selling cars for money today since goods were first exchanged between people thousands of years ago trading has been a great way of making profits people
started trading everything real estate cattle sugar cotton gold oil food clothes weapons technology even art today even trading money for money is possible moreover anyone can do it online at anytime and from anywhere the financial market is the place where financial assets such as stocks bonds currencies and commodities are traded some people are motivated to trade because they expect to gain a profit on their investment we call them speculators speculators try to anticipate price movements and trade to make a profit by buying low and selling high some other people are motivated to trade in order
to manage their risk we call them hedgers hedgers trade in order to protect an asset they already have like the farmer who sells his crop before the harvest season besides trading to save manage risk and speculate some people trade simply because they find it challenging financial trading all over the world takes place either through a regulated centralized exchange or over-the-counter exchange traded markets operate via a centralized exchange such as a stock exchange or futures exchange like the New York Stock Exchange NY se the London Stock Exchange LSE the Tokyo Stock Exchange TSE and many more
around the world over-the-counter markets are decentralized markets made up of networks of different dealers who compete to link buyers to sellers in an over-the-counter market dealers act as market makers by quoting prices at which they will buy and sell a security or currency in addition to being traded or OTC financial markets are also categorized based on the type of security traded such as the foreign exchange or forex market where you can buy and sell currencies like the euro in the dollar the equity or stock market where you can buy and sell shares of companies like
Apple Facebook and Alibaba the commodities market where you can buy and sell commodities like gold oil grains sugar and even frozen concentrated orange juice the bond or fixed income market where you can lend money to governments or corporations the derivatives market where you can trade financial contracts that obtain their value from an underlying asset like the above for the foreign exchange market or forex market is the financial market where currencies are traded or exchanged for one another it is the biggest market in the world with an average volume exceeding five trillion dollars per day and
is open 24 hours a day five days a week from Monday to Friday the foreign exchange market is an over-the-counter market used by individuals financial institutions businesses governments and other agencies foreign exchange transactions occur because of international trade tourism borrowing and lending and speculation today most currencies are freely floating and their price is determined based on the demand and supply of each currency the equity market or share market is simply the place where shares or stocks are traded as their name implies shares are financial assets that provide evidence of ownership in a company and hence
a share in its profits shares of publicly listed companies like Apple and IBM are traded in a stock exchange like the New York Stock Exchange if the company is profitable at the moment and expected to make more profits in the future the price of the share will rise as more people will want to own part of this company if the company is not profitable at the moment and is not expected to make future profits its share price will drop as people will not want to own that company but will prefer another the commodities market is
the place where raw materials instead of manufactured goods are traded they are divided into three main sectors agricultural commodities these include grains food and fiber like corn soybeans and cotton but also livestock and meat like cattle energy commodities crude oil Brent oil ethanol natural gas and propane metal commodities industrial metals like copper lead and zinc and of course precious metals like gold and silver the bond market or fixed income market is the place where investors and traders trade debt securities it is the market where borrowers that have shortage of cash meet with investors that have
surplus of cash the main issuers of bonds are government's semi government institutions like municipalities and corporations like IBM debt securities can be as simple as a bank loan a government bond a corporate bond as well as other securities when you buy a bond you are lending the issuer money and they promise to pay you back in full with interest in the future a city may sell bonds to raise money in order to build a bridge while a company like American Airlines may issue bonds to buy new aircrafts a derivative is an instrument whose value depends
on or is derived from the value of some other instrument called the underlying asset for example oil derivatives derive their value from the value of oil in the oil market derivatives are divided into two categories based on the asset they derive their value from commodity derivatives are based on commodities energy contracts derive their value from energy commodities like oil and gas financial derivatives are based on financial instruments stock and index contracts derive their value from the underlying stock or index there are several types of derivatives with the most common being futures options and contracts for
differences CFD futures a standardized contract to buy or sell an asset at a predetermined price at a specified date in the future options a contract that gives the holder the right to buy call option or sell put option a security at a specified price contract for difference CFD a derivative contract used as a speculative tool against changes in the value of an underlying asset financial derivatives have many benefits such as margin trading going long and short and some of them being tax exempted margin trading however as in all cases can increase both the profit potential
but also the risk so traders must use them wisely and should always remember the most fundamental rule of investing the higher the risk the higher the return in our next video we will talk about forex thank you for watching
