Financial Market Overview from Market Profile Perspective

This is a Financial Market overview, The term “financial markets” is a very broad and all-encompassing term. It can mean many different things to different people. For our purposes, we will define the financial market overview as the arena or the international system that allows for the flow and exchange of capital throughout the world. This definition highlights the international nature of the financial markets and the global flow of capital.

There are financial markets in every corner of the globe. Every major capital in the world has its own financial market. Financial markets facilitate the raising of capital, the transfer of risk, and international trade. A healthy economy cannot survive without a healthy financial market.

In recent decades, financial markets have become more and more intertwined throughout the world. What happens in Tokyo impacts London, New York, Sydney, and every other corner of the planet and vice versa. The world is increasingly becoming one giant financial global market.

Financial Instruments

There are many different types of financial instruments in the markets. There are stocks, bonds, commodities, money markets, derivative markets, insurance markets, and foreign exchange markets, just to name a few. Illustrating the growth and globalization of the financial markets, in 2010, the foreign currency exchange market (“Forex”) traded approximately four trillion dollars in a single 24- hour period.
There is always a market open somewhere around the planet and it is probably not going to be too long before we will find that all electronic exchanges will be open 24 hours every day. New technologies and advanced communication tools now make it possible for both ordinary individuals and large financial institutions to participate in markets all over the world.

Financial Market Participants

Financial markets also have a wide array of participants. However, to simplify matters we will divide these participants into two major groups. One group, we will describe as the “sell-side” participants in the market, and the other group we will identify as the “buy-side” participants in the market. The major financial firms, large financial institutions, and financial companies that issue and originate financial products represent the sell-side. These sell-side participants are primarily made up of investment bankers, large banks, distributors, brokers, resellers, and dealers. The sell-side participants often play a dual role in the market. First, they help to create the instruments that will be available in the market and often participate in market trading activities of the instruments that they have created. They also have another important and critical role in the markets: to provide the markets with liquidity.

Traditionally speaking, sell-side participants make their money based on fees and commissions charged to their clients. Their primary source of revenue is the financial services that they provide to their clients. However, this is not to say that these sell-side market participants do not get involved in actual market trading activities. Frequently, they are active participants in trading activities and they generate a considerable amount of their income from trading.

The other key participant in the financial markets is the “buy-side,” or the investors. These participants make up the large volume buyers of financial products. They are the market participants that bring capital to the market. Typically, these buy-side participants are pension funds, mutual funds, insurance companies, institutional investors, and hedge funds. They play a vital role in the market, providing capital funding for market activity. Consequently, they have a significant impact on any market that they choose to participate in. They are the participants that have the ability and the wherewithal to move the markets.

Ankit Maheshwari

Ankit is an avid writer with experience of working Investment Banking domain for over 7 years. He has been tracking Indian markets for over 10 years now for educational and learning purpose.

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