The 6 Most Popular Financial Markets
What are some of the most popular financial markets? This article will cover 6 of the most-speculated instruments, ranging from forex to futures, detailing some brief historical facts and the primary purposes of each.
We can trace the first official financial market just over four centuries ago in the city of Amsterdam. Though, of course, people have been trading all kinds of goods since the beginning of time.
Through an impressive technological evolution, paper trading began to morph into electronic platforms where buying and selling now takes place in milliseconds.
For even the most experienced, succeeding in any financial market is almost like alchemy or magic as participants attempt to decipher a largely emotional human game consisting of millions all seeking one goal: profit.
Trading or investing in any financial market is a mixture of art and science. Although we could argue stocks are the first real financial market, countless other instruments began to form since then, some of which have eclipsed their predecessor's popularity.
This article will go over 6 of the most popular financial markets, including some details of their relative size, when they began, and what their purpose is.
Foreign exchange (forex)
The foreign exchange or forex market is statistically the largest globally in daily trading volume (at least $5 trillion). Although we can marvel at the sheer size of this instrument, we should also understand its purpose.
The function of forex is for the exchange of global fiat currencies. Whether one is traveling abroad or through the numerous intercontinental business exchanges occurring offline and online, there will always need to be an element of exchanging one currency for another.
Though proper foreign exchange has existed probably since the early 70s (discounting that actual foreign commerce has always been around), analysts point to 1996 as the year where this market was officially open to retail traders.
Forex is a decentralized or over-the-counter market and has peaked immensely in popularity over at least the last 15 years due to its low barrier to entry, high margin, growth of the digital age, and the significance of international relations.
When we think of a so-called investment portfolio, the word 'stocks' often first receives a mention. Stocks are one of the oldest financial securities in recognized history, with the first stock exchange, the Amsterdam Stock Exchange, established in 1602.
Currently, there are about 60 major stock exchanges in the world, with the largest unsurprisingly based in the United States (around 55% market share), Japan (around 8% market share), and the United Kingdom (around 5% market share).
In the simplest form, a stock represents a share of ownership in a company looking to raise capital to fund operations to increase its bottom line. Owners of the stock gain capital appreciation through either dividends or trading (buying and selling).
Exchanges are the primary place where stocks are listed and traded, with various brokers and dealers in between who connect investors with them.
The performance of any stock market has a ripple effect on any country's economy. If companies are doing well profitably, this inevitably creates more jobs and promotes even further investment.
Indices are a unique financial derivative as they are a collection of several other instruments rolled into one. These can include bonds, commodities, currencies, and, more popularly, stocks.
Age-wise, indices have existed since about a century and a quarter ago. One of the first and still widely known, the Dow Jones Industrial Average (DJIA) was created in 1896 by the legendary American duo of Charles Dow and Edward Jones.
The DJIA is seen as one of the representatives of the US stock market's performance overall. Indices are essentially benchmarks to signify the health of a specific market segment or economy.
From an investment perspective, investing in indices has consistently been regarded as a better alternative to speculating on singular stocks or other individual instruments.
Cryptocurrencies are probably the financial market with the most increased following amongst all media and speculators globally in recent memory.
While the first digital coin, Bitcoin, first appeared in the public domain right at the start of 2009 with a purely bitcoin exchange forming in July 2010 (Mt. Gox), cryptocurrencies as an actual market probably began in earnest circa 2013.
At that time, there were only a handful of digital currencies, though 2017 was probably the year global attention amplified with the unprecedented bull markets experienced with Bitcoin, Ethereum, Ripple, and Litecoin.
Presently, the top 10 cryptocurrencies boast a combined daily trading volume of at least $250 billion. The purpose of a cryptocurrency is everything we know about physical money, but in digital, encrypted, and mostly decentralized form.
Cryptocurrencies are digital, promoting a seamless, lightning-quick, and low-cost medium of exchange while also being privacy-centric and utterly free from the shackles of any authoritarian control.
Proponents of this market have a grand vision of cryptocurrencies potentially replacing fiat currencies, although only time will tell.
In time immemorial, precious metals such as gold and silver have existed for at least several millennia. From the periods of gold and silver coins were used as a money form, precious metals now serve a versatile array of industrial, art, and jewelry uses, to name a few.
Besides fulfilling these purposes, serious investors have long considered precious metals as true storers of wealth and safeguards in economic downturns. As a tradeable market, investors and goods producers are always keen on the price of precious metals.
The futures market is another interesting subset of all the financial markets mentioned already, with roots traceable to ancient Mesopotamia around 1750 BC. However, the earliest recognized futures exchange is Japan's Dojima Rice Exchange, established in 1710.
While participants trade all of the markets above according to their 'spot' prices (the instrument's price at the current moment), a futures trade or contract is the delivery of a specified price at a future date.
Any market can become a futures contract; futures markets exist for indices, forex, cryptocurrencies, stocks, commodities, etc. Futures are an essential addition in the financial space as they tend to correlate with their spot market counterparts.
The six options mentioned in the previous sections only scratch the surface of the further options available for investors and traders. For some, hopefully, this is a starter into venturing in other instruments if they have only exposed themselves to one currently.
Succeeding in any financial market/s is understanding the risks involved in determining their prices continually through supply and demand forces.