FINANCIAL MARKETS
The Concept of Financial Markets & Their Main Types
Concept of Financial Markets
Financial markets are venues—local and global—where securities are bought and sold. Investors and traders pursue potential profit while trying to keep risk contained. Many traders focus on a single market (e.g., stocks or CFDs), but having a holistic view matters because markets influence each other. This article outlines the most important markets and explains their global role.
Markets 101
Investor Education
Department
OTM Academy
Category
Market Structure
Global Financial Markets: Definition & Scope
Definition of Financial Markets
At their core, financial markets are like any other market where products are exchanged. Instead of vegetables, clothing, or computers, the “products” are securities and financial instruments in many forms. Over recent decades, markets expanded rapidly and now offer a wide range of instruments.
Key Market Types include:
Forex (FX / the currency market)
Securities markets (equities & bonds)
Derivatives markets (e.g., CFDs, futures, options)
Commodities markets (gold, silver, oil, etc.)
Money & short-term debt markets
Crypto-asset markets (Bitcoin, Ethereum, etc.)
Mortgage markets (long-term financing)
Insurance markets (risk transfer for premiums)
Some markets are naturally long-term, short-term, or a mix. Mortgage markets originate many long-term loans, while money markets focus on the short-term.
Forex, stocks, CFDs, and commodities can be traded both short and long term. Professionals choose between investing and trading based on their approach and style.
Why Financial Markets Matter
Financial markets serve the economy through six essential functions:
Price discovery
Liquidity provision
Financial efficiency (e.g., lower transaction costs)
Borrowing & lending
Information on money flows
Risk sharing
Who enables the flow? Commercial banks, investment banks, central banks, insurers, brokers, and non-bank financial institutions (e.g., credit unions).
Quick Guide to the Main Markets
Forex — From $5B (1977) to $5T (2017) and $6.6T (2024) in daily turnover; growth supported by faster computing, more volatility, better broker access, and richer tools/data. Popular with traders seeking short- to mid-term opportunities.
Derivatives — Contracts linked to an underlying; used for hedging and speculation (e.g., CFDs, futures, options).
Commodities — Hard (gold, oil) and soft (agri & livestock). Access exposure via futures or CFDs without handling the physical good.
Securities — Primary market (issuance by companies/governments) and secondary market (trading of existing stocks & bonds).
Insurance & Mortgages — Mortgages provide long-term real-estate financing and can trade in secondary mortgage markets. Insurers collect premiums, hold large cash reserves, and invest in stocks, bonds, and derivatives.
Money/Short-Term Debt — Banks (and central banks) handle short-term liquidity; central banks often act as lender of last resort.
Crypto Assets — A newer market led by Bitcoin and others; blockchain and mining spurred adoption. The long-term value creation for consumers and the financial system will be clarified over the coming years.
How Financial Markets Evolved
Over the last 100 years, financial markets powered global trade and growth—especially in the last 25 years as they became more complex, developed, and important. Today we see: fewer FX barriers, more capital mobility, more global transactions, and more payment systems.
Trends include faster cross-border capital flows, new instruments (e.g., crypto), and digital technology—pushing markets toward being more open and advanced. Each market, however, retains distinct features.
U.S. Equity Leadership & Global Rotation
A pattern similar to FX growth appears in global equities. Research (Dimson, Marsh, Staunton, Triumph of the Optimists) shows over the last century:
The U.S. asserted market dominance
Exchanges consolidated
Secular rotation & sector shifts shaped market leadership
The U.S. share of world equities rose from ~15% (1899) to ~53.2% (2016). The UK fell from ~25% to ~6.2%; Germany from ~13% to ~3.1%. Some countries exited the list; others entered (e.g., Canada 2.9% in 2016, Japan 8.4% in 2016).
Stock Market Sectors: Then vs. Now
Business sectors changed dramatically from 1900 to 2017. Once-dominant railroads shrank from 62.8% to a few percent, while banks/finance and healthcare expanded. The next century won’t mirror the last—traders don’t need 100-year forecasts; they can operate on shorter horizons, which are easier to analyze.
U.S. Sectors in 1900 vs. 2000
U.S. Sectors in 1900
Sector | 1900 | 2000 | Δ |
|---|---|---|---|
Railroads | 62.8% | 0.2% | -62.6% |
Banks & Finance | 6.7% | 12.9% | 6.2% |
Mining | 0.0% | 0.0% | 0.0% |
Textiles | 0.7% | 0.2% | -0.5% |
Iron, Coal & Steel | 5.2% | 0.3% | -4.9% |
Distilling | 0.3% | 0.4% | 0.1% |
Utilities | 4.8% | 3.8% | -1.0% |
Telephony & Telegraph | 3.9% | 5.6% | 1.7% |
Insurance | 0.0% | 4.9% | 4.9% |
Other Transport | 3.7% | 0.5% | -3.2% |
Chemicals | 0.5% | 1.2% | 0.7% |
Food Manufacturing | 2.5% | 1.2% | -1.3% |
Retail | 0.1% | 5.6% | 5.5% |
Tobacco | 4.0% | 0.8% | -3.2% |
Small Sectors (1900) | 4.8% | 62.4% | 57.6% |
Total | 100.0% | 100.0% | |
Source: Investopedia, “Triumph of the Optimists – Dimson et al.” |
U.S. Sectors in 2000
Sector | 2000 | 1900 | Δ |
|---|---|---|---|
Information Technology | 23.1% | 0.0% | 23.1% |
Banks & Finance | 12.9% | 6.7% | 6.2% |
Pharmaceuticals | 11.2% | 0.0% | 11.2% |
Telecommunications | 5.6% | 3.9% | 1.7% |
Retail | 5.6% | 0.1% | 5.5% |
Oil & Gas | 5.2% | 0.0% | 5.2% |
Diversified Industrials | 5.1% | 0.0% | 5.1% |
Insurance | 4.9% | 0.0% | 4.9% |
Utilities | 3.8% | 4.8% | -1.0% |
Media & Imaging | 2.5% | 0.0% | 2.5% |
Distilling | 0.4% | 0.3% | 0.1% |
Mining | 0.0% | 0.0% | 0.0% |
Small Sectors (2000) | 19.7% | 84.2% | -64.5% |
Total | 100.0% | 100.0% | |
Source: Investopedia, “Triumph of the Optimists – Dimson et al.” |
