{"concept":{"id":2,"slug":"financial-market","term":"Financial market","shortDefinition":"A mechanism that connects those with savings available to those who need financing, through the exchange of financial assets (stocks, bonds, currencies, among others).","longDefinition":"A financial market doesn't exchange goods or services like a consumer market -- it exchanges financial assets. It serves three functions: it channels savings toward productive investment, it provides liquidity (the ability to turn an investment back into cash), and it sets prices through the meeting of supply and demand. The stock exchange is one of the best-known financial markets, but others exist too: the fixed-income market (bonds), the currency market, and the commodities market, among others."},"relations":{"requirement":[],"contrast":[],"related":[{"concept":{"id":3,"slug":"stock-exchange","term":"Stock exchange","shortDefinition":"An organized, regulated financial market where shares of listed companies are bought and sold.","longDefinition":"A stock exchange doesn't set share prices by its own decision: the price emerges from the meeting of buy and sell orders from participants. It is supervised by a regulator (in Spain, the CNMV) that oversees transparency and investor protection. Most trades happen in the secondary market, between retail or institutional investors -- not directly with the issuing company, which only receives new capital in the primary market (the initial IPO and, later, any capital increases)."}},{"concept":{"id":6,"slug":"share","term":"Share","shortDefinition":"A security that represents a proportional part of a company's ownership -- whoever holds it is a part-owner of that company, in the proportion that share represents of the total.","longDefinition":"Buying a share is not lending money to the company (that's what bonds are): it's acquiring a portion of its ownership. As a shareholder, you're entitled to a proportional part of the profits if the company pays dividends, and in principle to a vote at the shareholders' meeting -- although in practice that vote carries little weight if your stake is small compared to other shareholders. A share's value isn't set by the company: it's determined by the market, through the same supply-and-demand mechanism that sets the price of any asset in a financial market."}},{"concept":{"id":11,"slug":"liquidity","term":"Liquidity","shortDefinition":"How easily an asset can be converted into available cash, quickly and without losing significant value in the process.","longDefinition":"Liquidity is not a property exclusive to one type of asset -- it's a cross-cutting property: it affects stocks, bonds, currencies, commodities, ETFs, and funds alike, to varying degrees. Two assets of the same type can have very different liquidity levels (a heavily-traded large company's stock versus a small company's stock, for example). It mainly depends on how many participants are willing to buy and sell at any given moment, and on the difference between the buying price and the selling price (the spread) -- concepts revisited in more depth later in the curriculum."}},{"concept":{"id":8,"slug":"bond","term":"Bond","shortDefinition":"A debt instrument: the buyer lends money to the issuer (a company or a government) in exchange for periodic interest payments and repayment of the principal on a future maturity date.","longDefinition":"Unlike a share, a bond carries no ownership or voting rights: the bondholder is a creditor, not a part-owner. Creditors (bondholders) get paid before shareholders if the company is liquidated. A bond's main risk is default risk (credit risk) -- the possibility that the issuer can't pay the interest or repay the principal. Not all bonds are equally safe: a bond from a government with solid finances is considered much safer than one from a heavily indebted company, and that lower risk is usually reflected in a lower interest rate. The higher the perceived default risk, the higher the interest the market tends to demand in exchange for taking it on. A bond's price, like a share's, can also change on the secondary market before maturity -- typically moving in the opposite direction to general interest rates."}},{"concept":{"id":9,"slug":"currency","term":"Currency","shortDefinition":"A country's or economic region's money -- the dollar, the euro, the yen. Its value against other currencies depends on macroeconomic factors, not on any company's profits.","longDefinition":"\"Investing in currencies\" is, in practice, speculating on the exchange rate: buying a currency expecting it to appreciate against another. Unlike a share or a bond, a currency doesn't represent ownership or debt of any specific entity -- its value depends on monetary policy, inflation, and a country's or region's trade balance against others."}},{"concept":{"id":10,"slug":"commodity","term":"Commodity","shortDefinition":"A basic physical good, generally interchangeable between different producers -- oil, gold, wheat, copper. Its return depends solely on the change in its own price.","longDefinition":"Unlike a share, a commodity generates no profits and pays nothing out: it pays no dividends or interest. Its price is set by physical supply and demand for the good itself -- how much is produced, how much is consumed, and expectations about both. It trades on its own markets, separate from the stock and bond markets."}},{"concept":{"id":12,"slug":"risk","term":"Risk","shortDefinition":"Uncertainty about an investment's future outcome: the possibility that the actual result will differ from the expected one -- not merely the possibility of losing money.","longDefinition":"An investment's risk is not \"the probability of losing money\" in a strict sense, but the uncertainty about whether the actual result will match the expected one -- that result can be worse than expected, but also better. No investment is completely free of risk, not even holding cash, which carries the risk of losing purchasing power to inflation. Risk isn't uniform across asset types: it varies by issuer, term, and the nature of the instrument. It's directly tied to expected return -- see `return` -- and one way of measuring it, though not the only one, is volatility."}}],"calculatedBy":[]},"curricularPosition":[{"id":2,"moduleId":2,"slug":"what-is-a-financial-market","title":"What is a financial market?","summary":"You distinguish what a financial market is, what is exchanged in it, and how it differs from a consumer goods market.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you can distinguish what a financial market is, identify what is exchanged in it, and tell it apart from other markets you already know, like a consumer goods market.\n\n## Content\n\nA financial market is the mechanism -- today almost always electronic, not a physical place -- that connects those who have savings available with those who need financing. It doesn't exchange products or services like a supermarket does: it exchanges **financial assets** -- stocks, bonds, currencies, among others.\n\nA company that needs capital can issue shares (selling ownership stakes in the company) or bonds (borrowing money with a promise to repay it, with interest, on a future date). Whoever has savings can buy those shares or bonds, expecting a return in exchange for the risk they take on.\n\nFinancial markets serve three functions, even if it isn't obvious at first glance:\n\n- **Channeling savings toward productive investment**: without a market to connect them, the savings of some and the financing needs of others wouldn't easily find each other.\n- **Providing liquidity**: the ability to convert an investment back into available cash by selling it to another market participant.\n- **Setting prices**: an asset's price emerges from the meeting of those who want to buy it and those who want to sell it -- supply and demand -- not from a unilateral decision.\n\nThere are different types of financial markets depending on what is exchanged in them: the equity market (stocks), the fixed-income market (bonds), the currency market, and the commodities market, among others. This Academy focuses mainly on the equity market, but you'll gradually see the rest as well.\n\n## Example\n\nApple is a company listed on the Nasdaq, a U.S. stock exchange. Anyone with a brokerage account can buy one share of Apple and become, for that small part, a part-owner of the company -- that exchange (money for an ownership stake) happens precisely in a financial market, not in a store or a traditional bank.\n\n## Common mistakes\n\n- Confusing \"financial market\" with \"stock exchange\" -- the stock exchange is one specific type of financial market, the one for stocks, not the only one that exists.\n- Thinking that money is made automatically or with a guarantee in a financial market -- in reality there's real risk of loss; it's an exchange between parties, not a game with a guaranteed outcome.\n\n## Summary\n\nA financial market connects those who have savings with those who need financing, through the exchange of financial assets -- not physical goods. It serves three functions: channeling savings toward investment, providing liquidity, and setting prices through supply and demand. The stock exchange is one of the best-known financial markets, but not the only one.\n\n## Self-check\n\nWhat is exchanged in a financial market, instead of goods or services?\n\nWhy do we say that a financial market gives \"liquidity\" to whoever invests in it?","bodyHtml":"

Objectives

\n

By the end of this lesson you can distinguish what a financial market is, identify what is exchanged in it, and tell it apart from other markets you already know, like a consumer goods market.

\n

Content

\n

A financial market is the mechanism -- today almost always electronic, not a physical place -- that connects those who have savings available with those who need financing. It doesn't exchange products or services like a supermarket does: it exchanges financial assets -- stocks, bonds, currencies, among others.

\n

A company that needs capital can issue shares (selling ownership stakes in the company) or bonds (borrowing money with a promise to repay it, with interest, on a future date). Whoever has savings can buy those shares or bonds, expecting a return in exchange for the risk they take on.

\n

Financial markets serve three functions, even if it isn't obvious at first glance:

\n\n

There are different types of financial markets depending on what is exchanged in them: the equity market (stocks), the fixed-income market (bonds), the currency market, and the commodities market, among others. This Academy focuses mainly on the equity market, but you'll gradually see the rest as well.

\n

Example

\n

Apple is a company listed on the Nasdaq, a U.S. stock exchange. Anyone with a brokerage account can buy one share of Apple and become, for that small part, a part-owner of the company -- that exchange (money for an ownership stake) happens precisely in a financial market, not in a store or a traditional bank.

\n

Common mistakes

\n\n

Summary

\n

A financial market connects those who have savings with those who need financing, through the exchange of financial assets -- not physical goods. It serves three functions: channeling savings toward investment, providing liquidity, and setting prices through supply and demand. The stock exchange is one of the best-known financial markets, but not the only one.

\n

Self-check

\n

What is exchanged in a financial market, instead of goods or services?

\n

Why do we say that a financial market gives "liquidity" to whoever invests in it?

","sortOrder":1,"readingMinutes":4,"difficulty":"Básico","url":"/en/academy/fundamentals/introduction-to-markets/what-is-a-financial-market"}],"graphSummary":{"root":{"type":"concept","id":"2","depthFromRoot":0,"entity":{"type":"concept","slug":"mercado-financiero","term":"Mercado financiero","excerpt":"Mecanismo que pone en contacto a quienes tienen ahorro disponible con quienes necesitan financiación, mediante el intercambio de activos financieros (acciones, bonos, divisas, entre otros)."}},"depth":1,"returnedNodes":1,"truncated":false,"hasCycle":false,"nodes":[{"type":"concept","id":"2","depthFromRoot":0,"entity":{"type":"concept","slug":"mercado-financiero","term":"Mercado financiero","excerpt":"Mecanismo que pone en contacto a quienes tienen ahorro disponible con quienes necesitan financiación, mediante el intercambio de activos financieros (acciones, bonos, divisas, entre otros)."}}],"edges":[]},"relatedNews":[],"relatedEntities":[]}