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In economics, a financial market is a physical and / or virtual space in which financial instruments are exchanged and their preferences are defined.

In general, any market for raw materials could be considered as a financial market if the purpose of the buyer is not the immediate consumption of the product, but the delay of consumption in time.

You should know that the markets place all sellers in the same place, thus making it easier to find potential buyers.

Who are the financial markets?

Financial markets are made up of all the people who exchange financial assets. So we could also say that financial markets are made up of all investors who buy and sell those financial assets. And who are these people?

Almost everyone. When a married couple saves money and invests it in a Pension plan it is becoming part of the financial markets. When someone buys a house and takes out a mortgage, they are also part of the markets. When someone buys actions , Treasury bills , when the Government or a company issues debt , are also forming part of the financial markets. Even commodity markets can be considered part of financial markets as long as the customer is not the final consumer.

There are economic agents that have more influence than others in the financial markets. A person who invests 1,000 million USD / euros will have more power of influence than a person who invests 1,000 euros. If a person sells 1,000 USD / euros they will have little effect on the market. On the other hand, if a person sells huge amounts of shares of a bank, the shares of this bank will probably go down. In theory, in the long term, no matter how high the amount, if the market is broad, that investor's operation will dissolve and make the financial market reflect an efficient price again.

A financial market is governed by the law of supply and demand . That is, when someone wants something at a certain price, they can only buy it at that price if there is another person willing to sell that something at that price.

Functions of the financial market

The main function of a financial market is that of intermediation between people who save and people who need financing. In other words, connect buyers and sellers. Based on this, we can name these 4 main functions of financial markets:

Put in contact with everyone who wants to intervene in it.
Set an appropriate price for any asset.
Provide liquidity to assets.
Reduce intermediation terms and costs by facilitating greater circulation of assets.

Types of financial markets

There are several types of financial markets. A basic way to separate them is based on the time of the investment:

Money market : Short-term financial assets are exchanged (less than 12-18 months).
Capital market : Longer-term financial assets are exchanged. To this type of market belong the markets of variable income , fixed rent and markets of financial derivatives .