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Types Of Financial Markets – Part Three

The OTC Market

The over-the-counter (OTC) market is a type of secondary market also referred to as a dealer market. The term “over-the-counter” refers to stocks that are not trading on a stock exchange such as the Nasdaq, NYSE or American Stock Exchange (AMEX). This generally means that the stock trades either on the over-the-counter bulletin board (OTCBB) or the pink sheets. Neither of these networks is an exchange; in fact, they describe themselves as providers of pricing information for securities. OTCBB and pink sheet companies have far fewer regulations to comply with than those that trade shares on a stock exchange. Most securities that trade this way are penny stocks or are from very small companies.

Third and Fourth Markets

You might also hear the terms “third” and “fourth markets.” These don’t concern individual investors because they involve significant volumes of shares to be transacted per trade. These markets deal with transactions between broker-dealers and large institutions through over-the-counter electronic networks. The third market comprises OTC transactions between broker-dealers and large institutions. The fourth market is made up of transactions that take place between large institutions. The main reason these third and fourth market transactions occur is to avoid placing these orders through the main exchange, which could greatly affect the price of the security. Because access to the third and fourth markets is limited, their activities have little effect on the average investor.


Types Of Financial Markets – Part Two

Cash or Spot Market

Investing in the cash or “spot” market is highly sophisticated, with opportunities for both big losses and big gains. In the cash market, goods are sold for cash and are delivered immediately. By the same token, contracts bought and sold on the spot market are immediately effective. Prices are settled in cash “on the spot” at current market prices. This is notably different from other markets, in which trades are determined at forward prices.

The cash market is complex and delicate, and generally not suitable for inexperienced traders. The cash markets tend to be dominated by so-called institutional market players such as hedge funds, limited partnerships and corporate investors. The very nature of the products traded requires access to far-reaching, detailed information and a high level of macroeconomic analysis and trading skills.

Derivatives Markets

The derivative is named so for a reason: its value is derived from its underlying asset or assets. A derivative is a contract, but in this case the contract price is determined by the market price of the core asset. If that sounds complicated, it’s because it is. The derivatives market adds yet another layer of complexity and is therefore not ideal for inexperienced traders looking to speculate. However, it can be used quite effectively as part of a risk management program.

Examples of common derivatives are forwards, futures, options, swaps and contracts-for-difference (CFDs). Not only are these instruments complex but so too are the strategies deployed by this market’s participants. There are also many derivatives, structured products and collateralized obligations available, mainly in the over-the-counter (non-exchange) market, that professional investors, institutions and hedge fund managers use to varying degrees but that play an insignificant role in private investing.


Types Of Financial Markets – Part One

A financial market is a broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial markets are typically defined by having transparent pricing, basic regulations on trading, costs and fees, and market forces determining the prices of securities that trade.

Financial markets can be found in nearly every national in the world. Some are very small, with only a few participants, while others – like the New York Stock Exchange (NYSE) and the forex markets – trade trillions of dollars daily.

Capital Markets

A capital market is one in which individuals and institutions trade financial securities. Organizations and institutions in the public and private sectors and also often sell securities on the capital markets in order to raise funds. Thus, this type of market is compose of both the primary and secondary markets.

Any government or corporation requires capital (funds) to finance its operations and to engage in its own long-term investments. To do this, a company raises money through the sale of securities – stocks and bonds in the company’s name. These are bought and sold in the capital markets.

Money Market

The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit (CDs), banker’s acceptances, U.S. Treasury bills, commercial paper, municipal notes, Eurodollars, federal funds and repurchase agreements (repos). Money market investments are also called cash investments because of their short maturities.

When Should You Start Investing?

If this question bothers you, then it’s time to relax because the answer is – you’re never too young (or old) to start investing. Of course, investing is pretty much like learning a language – it’s easier to start when you’re young, but don’t be discouraged by your ages.

In most countries, 18 is the age when you are legally old enough to enter into a contract and legally old enough to buy and sell stocks in your own name. If, by any chance, you are younger, maybe you should ask your parents to do the work for you. If you don’t want that, they you should seek for an alternative:

  • Certificates of deposit – these are a common investment made in a child’s name because they are very safe and are meant to be held until maturity.
  • Stocks – bought by parents in the name of minor children.

Top 3 Industries To Invest Your Money In

Technology Stocks:

-Cisco (CSCO): Cisco is a world leader in telecommunications infrastructure and possesses a strong financial position on the market. With a net cash of $30 billion and a P/E ratio of 11X, the company offers 3.2% dividend yield and an alluring payout of 33%. In the past 10 years, the EPS of Cisco has grown by 12 percent along with a 10 percent free cash flow yield.

Apple (AAPL):

Apple has bounced back with its tablets and iPhone 5/5c in 2013. Tim Cook, Apple’s CEO, has announced a new line of products in 2015 including an early launch of iPhone 6s and Apple TV again in the news. The current deal with China can bring up to 700 million customers for Apple and things are certainly looking good for the company. Most of the stock experts believe that Apple will increase significantly for its investors.


With a market cap of $203.34 billion, IBM has a dividend plus share buyback yield in excess of 7% plus a free cash flow of 9%. The company has a strong history of offering mid-teen profit margins for the past several years.

Industrial stock:

-Schlumberger Limited (SLB): As of now it pays 1.4% dividend and has a consensus target of $110.

-Danaher Corp. (DHR): The consolidation has helped in boosting share price for Danaher Corp.

-S&P 500 SPDR (SPY): For passive investors, S&P 500 SPDR is the best ETF to put their money and get hefty returns. With a market cap of $174.85 billion and year-to-date returns of 32.31%, it is one of the best places to spend your money.

Consumer Discretionary Stocks:

-Ford Motor Co. (F): Ford has a market cap of $63,39 billion and an EPS of 1.42%. The quick growth in its EPS has helped the company gain market trust.

-Comcast Corp. (CMCSA): This cable company has an excellent reputation in the entertainment industry. The company offers a current dividend of 1.55 with a UBS price target $60.

-J.P. Morgan Chase & Co. (JPM): With a market cap of $219.85 billion, the company offers a 2.6% dividend and a USB price object of $65.