If you want to participate in the financial markets, why must you first pay to do so?


Although the financial markets can be difficult to grasp, they play a crucial part in the economies of the industrialised western countries, thus it is important that you do. There is the potential to become filthy rich or to lose everything, including one’s clothing, via them.

It’s easy to see how folks may be perplexed by the Financial Markets. Two seemingly identical definitions actually mean quite different things.


First, a Financial Market is any establishment (bank, stock exchange, etc.) that facilitates exchanges between buyers and sellers.


The second definition of a financial market is “the process through which goods and services are bought and sold.”


Have you noticed the distinction? A Financial Market may be both an institution and a process. Trading can be thought of as either a verb or a noun, but either way it refers to the interaction between buyers and sellers.


Let’s say you want to purchase a house, so you go to the bank and apply for a loan. A typical bank loan may go something like this: “Ok, here is the $250,000 you need right now, but you have to PROMISE to pay us a tiny amount of money every month for a number of years, and, in the end, you will be paying us more than $250,000.” You’ve successfully completed a deal, so please accept my congratulations. The bank loaned you $250,000 and you promised to repay them with interest. Thus, the two of you engaged in a mutually beneficial deal on the Financial Market.


To what end are there Financial Markets?


There are numerous justifications for the existence of financial markets, but the one given above is the most fundamental. The reason they are around is to help those in financial need (Borrowers) connect with those in a position to help them (Lenders) by loaning them money (Lenders). In a capitalist society where financial wealth represents individual autonomy, this is a bare minimum requirement. If you want more freedom to be, do, and have what you want, acquire wealth.


A person’s ability to provide for themselves and their community is made possible by the Financial Markets. It’s possible to provide for a family of four by spending much less than $250,000 on a home. There is typically only a nominal setup cost and a similarly minimal ongoing commitment. People are able to invest in enterprises and generate a profit for themselves because to the existence of financial markets. Let’s pretend you’re interested in purchasing shares of stock. So what you’re saying is “I have faith in your business acumen and trust that you will put the money I’m giving you to good use. Oh, and you’ll return my money plus some sort of bonus, right?” It is more common to refer to this “extra” as a Dividend.


To compare the Financial Market to an airport, consider the role it plays in our economy. Were it not for it, the economy would undoubtedly fail.


Buyers and Lenders are.


Lenders and Buyers can be any legal entity, including individuals. Their participation in the “Trading” process determines whether they are a Lender or a Buyer.


Someone who makes a loan request is known as a Borrower. You get loans from financial institutions, right? When you invest in a company through the purchase of stock, you are effectively lending that business money. That didn’t hit you, did it? Bond sales are a common method for governments to raise funds from the general public. You may think of it as a government-issued IOU.


A Lender is someone who lends money with the expectation of receiving it back, plus interest, at a later date. The term “Interest” is used to describe this “additional” sum. You can borrow $10 from me now if you can pay me back $12 tomorrow. There was an Interest fee of $2 that you imposed. You played the role of Lender when you made that investment in the company’s shares. When you deposit funds into a savings or Money Market account at a bank, you’re also taking on the role of a Lender. You’re under no obligation to deposit funds, but doing so will result in interest payments while your money is invested and used to generate profits.




Information for this article was obtained from: http://EzineArticles.com/332363.

Leave a Reply

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