Basics of Financial Markets for You

Did you know that you can make a handsome amount of money by investing in Financial Markets?


Mohammad Saad

3 years ago | 4 min read

Did you know that you can make a handsome amount of money by investing in Financial Markets?

Financial markets, from the name itself, are a kind of marketplace that gives an avenue for the sale and buy of assets like bonds, stocks, exchange, and derivatives.

Often, they're called by different names, including “Wall Street” and “capital market,” but all of them still mean one and therefore the same thing. Simply put, businesses and investors can attend financial markets to boost money to grow their business and to form extra money, respectively.

The structure of the Financial Markets is as follows

Financial Markets are broadly classified into two parts: Money Market and Capital Market. We will discuss each of them separately


They are the markets that act as a conduct in flow of funds from savers to fund seekers.

They are further classified into Securities Markets, which provide a platform to those financial institutions that are transferrable by sale. They are further divided into Primary and Secondary Markets.


· They contribute to the economic growth of a country

· They promote saving habits

· They ensure stable and systematic security prices

· They ensure the availability of funds

Primary Market

It is the first-hand market that deals with the newly issued stocks and securities.

It includes public issues like IPO(Initial Public Offering), offers for sale, etc , bonds(fixed income instruments), warrants(derivatives which give the right to buy or sell a security at a certain price before expiry), FDI(Foreign Direct Investment), FD(Fixed Deposits in Banks), FII(Foreign Institutional Investment), etc.

IPO of any company gets listed on exchanges like NSE, BSE, etc, and is used to raise funds for a company.

Secondary Market

It is the second-hand market and deals with already issued stocks and securities. It involves trade in stocks, currencies, and commodities. The two main markets under it are

1. Stock Market

Many of you might be aware of this market. It is a place where the stocks of a company are traded. It consists of three elements: buyers (bulls), sellers (bears), and exchange (NSE, BSE, etc)

Some of the terms that you need to know about the stock market are

· Market Capitalization (MCap): It is defined by multiplying the current market price of the share and the total number of common outstanding shares. The companies with Mcap greater than 20,000 crores are called large-cap companies. They are the top 100 companies listed on the exchange. The companies with Mcap between 5,000 and 20,000 crores are called mid-cap companies. They are in the 101-250 companies listed on the exchange. The companies with Mcap less than 5,000 crores are called small-cap companies.

· Indices: They are a score to measure the performance of the companies. The two most popular indices are NIFTY and Sensex. NIFTY includes the top 50 companies listed on the National Stock Exchange (NSE) while the Sensex includes the top 30 companies listed on the Bombay Stock Exchange (BSE).

· Dividend: It is the means through which the company distributes a part of its earnings (its profit after tax) to its existing shareholders. It is given on a per-share basis. It is declared as a percent of the face value of the share.

2. Forex Market

The forex market is the market during which participants can purchase, sell, exchange, and speculate on currencies. The players in forex markets are banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors.

The currency market is taken into account to be the most important financial market with over $5 trillion in daily transactions, which is over the futures and equity markets combined. Currency is always traded in pairs. The price is quoted in two ways: Bid price (Buy) and Ask price (Sell).

Many factors affect this market like GDP (Total Value of all goods and services produced in a country in a given year), retail sales, Monetary policy, Industrial Production, etc.


The money market as the name suggests is related to money. It is a market where participants can lend and borrow short-term, high-quality debt securities with average maturities of 1 year or less.

The market enables governments, banks, and other large institutions to sell short-term securities to fund their short-term income needs. It also allows individual investors to invest small amounts of cash during a low-risk market.

Some important terms in money markets are

· T-bills: They are issued by Central Government at a discount and multiples of 25000.

· Certificate of Deposits: They are negotiable, unsecured promissory notes issued by Banks i.e form of a certificate entitling the bearer to receive interest. They are issued in multiples of 1 lac

· Coupon: It is the money paid by the borrower to the lender.

· Accrued interest: It is the unpaid interest between the previous coupon payment date and the date of purchase

· Mutual Funds: It is a way to invest money in which an investor gives his money to a fund manager who then invests the money in stocks, bonds, etc.


For investing or trading in financial markets an investor needs three things

1. Bank Account: It is needed to transfer and receive funds on buying and selling of shares, currency, commodity etc.

2. Trading Account: It is required for front end buying and selling of shares.

3. Demat Account: It is used for keeping the shares.

So investor first deposits money in his Bank Account from there it goes to the Trading Platform then to the Demat Account.

A T+2 settlement process is carried out to complete the trade except for Saturday, Sunday and, Holidays. A contract note is issued confirming the trades done on a particular day for and on behalf of a client. It establishes a legally enforceable relationship.

It is important to understand the risks before investing in any market because just blindly doing things will lead you in trouble. The COVID-19 pandemic has brought down almost all financial markets in the world.


Created by

Mohammad Saad

Always Looking to Learn New Things and Meet New People. Student of Hansraj College, Delhi University.







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