There are four major types of financial markets that include; stock market, derivative market, bond market, and commodities market. The stock or equity market is where investors company stocks through the primary market or secondary market. Investors purchase listed company shares or units in various securities exchange, become shareholders and thus have a voting right to the company. Supply and demand factors in the market determine the value of the share. The market has high liquidity value, and buyers or sellers can liquidate their value earning capital gains. Through the purchase of stocks, investors earn dividends either semi-annually or annually from after-tax profits (Lawrence S , 2014) .
The bond market or bondholders offer credit facility to a company with a guarantee to repay the principal amount and interest periodically. Bonds offer the government or companies to secure large sums of money to finance a big project. Examples of bonds include corporate bonds, municipal bonds, green bonds, and treasury bonds. Bonds usually have a fixed maturity date running five years, seven years or ten years. Treasury bonds are a secure form of investments as they offer a risk-free rate since the rate of default by the government is nil (Lawrence S , 2014) .
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Derivate markets are a complicated form of trading securities whose value lies with an underlying asset. Underlying variables can include stock prices, interest rates, or exchange rates. The common form of derivatives includes forwards, futures, swaps and options. Complex structures are created to hedge against the risk of price differentials within a particular period (Lawrence S , 2014) . The commodities market includes buying and selling of natural resources such as gold, oil, metals, among others. It is mostly associated with the foreign exchange market. The prices of these assets are unpredictable. Their trading involves hedging against future prices to make a profit due to price differentials within a particular period (Lawrence S , 2014) .
Reference
Lawrence S , R. (2014). Principles of money, banking & financial markets. Boston, MA: Addison-Wesley.
