Financial markets are the places where companies, individuals and other financial institutions enter contracts and sell or buy different types of financial products. The price of these products changes depending on supply and demand. This helps investors make a good return on their investment.
Some of the financial products traded include stocks, commodities, derivatives, cryptocurrencies and bonds. These are all designed to allow investors to earn a better return than they would by sitting on their savings account. However, they also come with risks. For example, an investor may lose money due to a lack of knowledge. And, in the case of stock market investments, the value of the investments can fall.
These markets are very important to the functioning of capitalist economies. They also help businesses control future costs of commodities.
A company can raise funds by selling shares to interested investors. These shares can be listed on a stock exchange. Once the shares are sold, the seller is responsible for paying the principal and interest on the bond to the investor.
Companies can also raise funds by issuing bonds. Bonds are usually issued by corporations, states, municipalities and the government. They promise to repay the debt. When the investor purchases the bond, he or she is given the pre-established interest rate.
In addition to helping businesses raise money, these markets are important because they serve as a platform for buyers and sellers. Buyers are able to trade securities whenever they wish.