What are financial markets?

“Financial markets” are markets (physical or virtual) where the supply and demand for money, securities, or financial instruments come together. Although many people associate financial markets with trading floors and stock exchanges, the definition also includes less formally organised markets, such as transactions via the OTC market, arranging mortgages through banks, peer-to-peer lending via the internet, or even informal trading on street corners.

Financial markets perform a range of important functions, including price discovery, providing arbitrage opportunities, asset valuation, attracting long-term capital, allocating financial resources, managing risk, and facilitating commercial transactions. These markets play a crucial role in the economy and form the heart of the financial system by ensuring the efficient allocation of capital, the management of risk, and the support of trade transactions.