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You’re Never Too Young to Understand Financial Markets

Posted: February 22, 2019 at 3:30 pm   /   by   /   comments (0)

According to my research, the secret to financial freedom by age 30 is to start young. You’ve got to learn market basics while you’re still young. The financial markets basics are not too complex for anyone to understand with the right resources and strategies. For instance, the term financial market is driven by two separate words: finance and market. “Market” is, of course, place or places where people meet to exchange goods or services for money.

Market is an extensive term to incorporate places where people buy and sell, such as supermarkets and many more. It even incorporates the art market which includes the real estate market. A financial market is based on the “assets” or goods traded on them. The common financial markets which this article focuses on include the bond market, the equity market, the foreign exchange market as well as the currency market.

As a young person, before venturing into or even thinking about trading in stocks and the like, you need to build a strong background on financial markets. Here are some ways to get started.

  • Understand what money does

You need to understand that the money you have can be used in different ways. You can spend it on something or save it in your bank account. When in the bank account, the money doesn’t just stay there, it is issued out as loans, and the like, to help other people acquire homes, cars and more. The bank draws money from the accounts to facilitate that. Therefore, the bank acts as a financial market for money.

  • Learn how investments work

This also forms the starting point in understanding financial markets. How to invest in business? Understand the differences between a sole proprietorship, partnership, and a company. In the event that you have saved money enough to start a business, you will need to know capital sources to grow your business further. To grow the business, you will need to partner with another individual or business.

Companies can source funds from banks through loans just like individuals. They can also seek financing through bonds. They issue bonds as a form of borrowing. Investors who buy the bonds will wait for the agreed amount of time for the bonds to mature and be paid the money they invested. The company can also decide to go public and sell stocks. A stock is a piece of ownership of a company which has gone public. This will bring you to terms such as initial public offering (IPO).

Financial markets are regulated and have professional people. If one needs to buy bonds or stocks, they go to a securities market, such as the New York Stock Exchange.

  • Understand factors that affect prices as well as markets

From understanding investments, you are now eligible to understand the various market and price dynamics. If you understand the effects of prices and markets, you will make sound investment decisions when the time comes. In this category, you will understand why stock prices rise and what strengthens markets. Seek to learn the basics of price and market dynamics, such as how the actions of investors affect bonds and stocks? Other factors that can have an effect on the markets are business conditions, economic indicators, international events, and government actions.

  • Understand types of financial markets

As we have already seen, a financial market is an extensive term that describes a place where people meet to sell and buy assets such as bonds, equities, derivatives, and currencies. They are everywhere around the world and for a starter, it is helpful to equip yourself with the knowledge of the types of financial markets.

Capital markets are markets where entities trade financial securities. Stocks, bonds, and securities are sold in the capital markets. Corporations engage in trading of securities to enable it to get money to put into long-term investments. 

The money market is yet another financial market segment which deals with financial instruments which have very high liquidity as well as very short maturities. Participants get into the market to borrow money to be repaid in a short term. Other markets include cash or spot market, derivatives markets, as well as forex and the interbank market.

Bottom line, the journey to understanding financial markets and being a “genius” in investments is smooth and more rewarding when started at an early age. Your age should never limit you from exploring the financial world.

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