Investing is considered a risk because there’s always a chance that an investor may experience loss due to factors affecting the overall performance of financial markets. But you can’t eliminate that fact because in whatever business that one enters, risk should always be considered. The following are the different varieties of financial markets in which one can invest money. The main markets are stocks (equity), bonds, forex, derivatives, and physical assets. Investors are given overviews of the different markets available.
Stock market is one of the most familiar type of market to the average investors. Stock market allow the investors to buy and sell shares of ownership in publicly traded companies. In stock market, money is made in two main ways: one is through capital gains where the value of each share increases in value and the other one is through dividends where companies pass on income to investors.
Like stocks, bonds are traded between investors after issuance in the primary market. But unlike stocks, most bonds are traded over the counter instead of trading in the secondary market. The debt market is used by companies to issue debt instruments to raise capital. Basically, stocks represent an ownership interest in a corporation while bonds are a form of long-term debt in which the issuing corporation promises to pay the principal amount at a specific date.
Foreign Exchange (Forex)
A decentralized global market where all the world’s currencies trade. It is said to be the largest and most liquid market in the world having daily average trading volume exceeding $5 trillion. Forex determines the foreign exchange rate.
Acquisition of assets such as metals, jewelry, real estate and other tangible assets that can be seen, touched and with an identifiable physical presence. Investors in this market hope that they can sell an asset in the price that is more than what they paid for.
A major type of investment, derivatives is an expansion of all of the above types of markets. Derivative is a contract between two or more parties based upon the asset or assets. The price is determined by fluctuations in the underlying asset.