Financial Markets

Financial markets can be classified by different ways depending on its functions, trading mechanism, and different products it is trading.

Types of Financial Market

1. Financial Markets by its function:

Primary Market
Securities underwriting - where stocks or bonds first issued and sold to investors (e.g. IPO)
Companies or governments
Secondary Market
Principal or agency trading - where securities were traded by majority of investors. Far more important than Primary market, creating supply/demand and liquidity of market.
security dealer; institutional and individual investors

2. Financial Markets by its mechanism:

Auction Market
security price determined by bid and ask price of buyer and seller at a central trading location.
Most major stock markets, like TSX are Auction market
Dealer Market
Also known unlisted market, where securities are bought and sold over-the-counter. Dealer acts as principals to buy and sell securities for clients. No central trading location. Securities price less visible.
Bonds, debentures, unlisted OTC equities are traded trhough dealer market. Market size is much larger than Auction market.

3. Financial Markets by its investment markets:

Invesment Products
Equity market
Also known as stock market, where the shares of most publicly listed companies are trade.
Most major stock markets, like TSX are Auction market
Bond Market
Mutual Fund Market
Foreign Exchange Market


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