November 29, 2021

Here are some FAQs about financial markets

The very existence and working of financial markets warrant the asking of so many questions which is completely excusable given the very nature of this business. The existence of such a complexly networked environment makes it necessary to ask questions. In this article I will be looking at some of the questions that people ask frequently about financial markets.

What are financial markets?

Yeah, I know. Just the mention of the world financial market sends chills down the spines of so many people because it is such a confusing concept. However, if you look at it from the core of it, then you get to understand that financial markets are basically just a system that brings people with the same needs together. To make it even more interesting, think of companies such as eBay, which matches the needs of sellers and buyers. If you need a computer, you can go to eBay and find someone somewhere who is interested in selling the exact model and type of computer you are looking for. eBay exists just to facilitate the meeting between you the buyer and the seller.

In the same way, financial markets facilitate the meeting between buyers and sellers of financial instruments.

How do financial markets help me?

Financial markets provide people with a lot of opportunities such as the opportunity to invest money into shares of any publicly traded company. Such money is usually referred to as equity and you can build yourself a lot of equity for use in the future. Equities provide a lot more return when compared to opening a savings account and bundling all your money there. However, the catch is that buying equity often carries more risk with it. When you buy shares, you can either expect the value to go down or up. If the price goes down, you lose money and if it goes up, you gain money.

Even insurance companies use financial markets to ensure that people get paid when they encounter events for which they are insured. Similarly, banks are able to offer loans to borrowers because of financial markets. The banks take money from investors and provide it to borrowers at a certain interest. This interest goes to the investor and the bank.

What’s our role in financial markets?

Before I answer that question, I will talk shortly about the role of financial markets in our lives. If you remember the financial crisis of 2007, then you understand how much effect it had on people’s lives. People lost jobs, pensions, homes, cars, and a lot more. Banks couldn’t provide people with loans and there was much less economic activity, which led to people losing their jobs and much more.

Now to answer the question, our role in financial markets is to ensure that they are operating in a safe manner. Setting standards is good for everyone. Ensuring that financial markets such as operate in a manner that doesn’t endanger the financial balance in an economy is our responsibility as people.

Financial markets can help you accumulate wealth faster. However, you do have to keep in that you do not take any rash decisions to earn profits; you can end up in financial scams. Thus, analyse thoroughly, do your research well. In fact, if you can spare five minutes to read this case study, you would know how essential it is to do research thoroughly before investing.

Leave a Reply

Your email address will not be published. Required fields are marked *