What is a Financial Market?

A financial market is a location where buyers and sellers meet to exchange goods and services at prices determined by the forces of supply and demand.

How do Financial Markets Work?

A financial market may be a physical location or a virtual one over a network (for example, the Internet). Here, people who have a specific good or service they want to sell (the supply) trade with people who wish to buy it (the demand).

Prices in a financial market are determined by changes in supply and demand. If market demand is steady, an increase in market supply results in a decline in market prices and vice versa. If market supply is steady, a rise in demand results in a rise in market prices and vice versa.

Financial markets are affected by many variables including consumer preferences and perceptions, the availability of materials and external sociopolitical events (for example, wars, government spending and unemployment).

What Are Some of the Types of Financial Markets?

Financial markets include a broad range of assets being traded between buyers and sellers.

  • The stock market is where traders buy and sell shares of ownership in publicly-traded companies.
  • The real estate market trades homes, commercial property or land.
  • The futures market offers buyers a place to purchase futures contracts, which gives the buyer an obligation to purchase an asset (including stocks, bonds, commodities, grain, precious metals, or any other asset) at a set price at a future point in time.