A financial market can be defined as a mechanism that provides the possibility for various economic agents to carry out the exchange of financial assets of various types. In general terms, any commodity market can be considered, for example, as a financial market if the purpose of a buyer is not the immediate consumption of the raw material itself, but the delay in consumption over time to make a profit with the Variation in price. However, financial markets today are not limited to raw materials as they cover all types of financial assets, some of which are extremely complex, such as derivatives . In fact, current investors have the ability to trade with hundreds of thousands of assets of all types.
Like any other market, financial markets are affected by the forces of supply and demand which determine the price of assets. Basically, the function of the market is to place buyers and sellers in one place so that transactions are carried out with the greatest efficiency. Hence, the various advantages that the financial markets present for the various economic agents arise, among which we can highlight the following:
The increase of capital, especially in the capital markets.
They facilitate international trade, especially in the case of globalized financial markets like Forex (the foreign exchange market).
They allow risk transfer, as in the case of derivatives markets.
They are a way to bring together those investors who need financial resources with those who have them and look for where to invest their capital
General functions of financial markets
Based on the above points, three general functions can be defined for the financial markets, which summarize their functioning:
Determine the prices of the various financial assets based on the supply and demand of them. In this case it is the relationship between sellers and buyers at any given time that determines the price of an asset.
Establish the necessary mechanisms that facilitate the contact between buyers and sellers who wish to negotiate.
Limit the costs of intermediation in transactions, in order to facilitate a greater volume of negotiation.
How do you invest in financial markets?
As already mentioned, there is a large number and variety of financial assets that can be chosen to invest and which are listed in hundreds of financial markets around the world. The most prestigious assets are those that are listed in the United States and Europe. Any investor who wants to invest in the financial markets, requires an account with a broker or prestige broker (an example are some Forex brokers ) and learn the use Of the different tools necessary to analyze and interpret the quotations in the different markets.
Of course, there are different types of investors, each with its own investment style and methodology, which depends on the assets it trades with, the type of market and the period in which it intends to make a profit (periods of speculation). In this way, the different times of speculation offer a whole range of investors ranging from those that operate in the long term (months and even years) to those that speculate with the daily movements of the price of the assets.
Among the methodology used by investors to analyze the market, two stand out that although in some aspects collide, they can be used together to obtain a better panorama of the behavior of the market. This is fundamental analysis and technical analysis . The first approach is based on the study of the events that move the market in one direction or another while the second is based on the study of the price of the asset in such a way that it serves to optimize the entry and exit of the market, looking for it Decrease the risk of each operation.