The financial market provides the opportunity for economic agents with surplus funds and those with deficit funds to carry out transactions with each other. The market is broadly divided into the money and capital market. Aside from the actors, there are intermediaries and regulators that serve as middlemen and policy makers to ensure its smooth operations.
1. What's a financial market
It is that market where economic agents exchange their surplus funds with those with deficit funds through the trading of market instruments. Financial market brings surplus and deficit individuals and institutions together through a market middleman known as financial intermediaries.Â
The intermediaries serve the market by providing a place for economic agents. This place can be a building, a location, or via an online platform. In Nigeria, the popular broad street or NGX provides a place in which securities such as treasury bills, bonds, and stocks are traded. The NAFEM is the official window for trading currencies. While commercial banks provide locations to trade, save and borrow money to market players.Â
There are also online marketplaces for commodities, currencies and stocks. The fintechs in Nigeria spearhead the trading of stocks, bonds, currencies, and treasury bills instruments for both local and global companies. Online platforms like remitano help bring people together to trade cryptocurrencies. Therefore, without the financial intermediaries in the market it will be difficult for those in need of funds to meet those that have them.
2. Division of the financial market
There are two broad divisions of the financial marketplace. These are: money and capital market.
2.1 Money market
This is the place where short term market securities are traded. The market instruments are used through savings, loans, and fixed deposits. Their intermediary is mainly commercial and microfinance banks. The central bank of Nigeria (CBN) regulates the money market. And ensure market stability to reduce inflation.
2.2 Capital market
Capital market ensures the trading of long term market securities such as bonds, shares, currencies, commodities, and derivatives. It is the largest known division of the financial market. The CBN and SEC (Security and Exchange Commission) are the primary regulators. The popular broad street (mostly referred to as the Nigeria Exchange Group) in Nigeria provides the marketplace for the buying and selling of shares, bonds, and derivatives.Â
2.3 Conclusion
To conclude, the financial market is a platform for buying and selling of securities. There, individuals with surplus funds can buy securities of those of deficit funds. Thereby providing the needed resources for them to carry out their capital expenditure and operating costs.
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