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L1 Introduction to FM

2 min read

Financial Markets - Different Classifications

  • Maturity of instruments
    • Money Markets - Short Term Maturity (< 1 year)
      • eg. T Bills, Commercial Papers and others
      • Between FI and corporation
    • Capital Markets - Long Term Maturity (> 1 year)
      • eg. Bond and Stocks
      • Primary Markets - Issuer to Investor
      • Secondary Markets - Investor to Investor
  • Transaction Settlement
    • Spot (Cash) Markets
    • Derivatives
  • Trade Medium
    • Exchange Based (NYSE, SGX..)
    • Over the Counter (Forex)

Financial Instruments

  • different instruments, different profiles
    • expected returns (%) vs risk (%)

Stocks | Fixed Income | ETF’s

Stocks

  • traded in stock markets / share market / equity markets
  • capital markets
  • company’s stakeholder
  • hold the risk if company fails (recessions 2008, 2020)
  • traded in exchanges: NYSE, SGX, NSE…
  • benefits: dividends, less risk

what do you need to know to invest in stock markets?
keywords: nature of business, capital growth or dividend, who’s the management, political and economic issues

Fixed Income

  • fixed timely returns
  • based on maturity and interest
  • fixed deposits, t-bills and bonds among others

keywords: macroeconomic factors, interest rates, inflation

ETF

  • exchange traded funds
  • mostly tracks indices (S&P500, ASX200, STI, NIFTY or others)
  • performance depends on the group of instruments . index and not an individual company
  • STI Index Components
  • SPDR STI ETF
  • can be designed in many ways
    • Stocks ETF, FI ETF, Balanced ETF or others

Commodities | Forex | Cryptocurrency | Derivatives

Commodities

  • Metals
    • gold, silver, platinum, copper
  • Energy
    • crude oil, heating oil, natural gas, gasoline
  • Livestock and meat
    • lean hogs, pork bellies, live cattle, feeder cattle
  • Agricultural
    • corn, soybeans, wheat, rice, cocoa, coffee, cotton and sugar

Forex

  • made of banks, central banks, investment management firms, hedge funds, retail forex brokers and investors
  • USD pairs and crosses
  • one currency against another
  • largest financial market
  • driven by macroeconomic events

keywords: macroeconomic factors, OTC, pips, volatile

Why Traders Trade Forex

  • highest trading volume
  • traded 24h a day
  • high leverage (up to 50 times)
  • low commissions
  • long period shorting allowed
  • no fixed lots
  • various resources / platforms / technology available

Cryptocurrencies

  • core - blockchain technology
  • different coins solving different problems
  • exchange based - CEX and DEX

Derivatives

  • contract that settles at a future date
  • risk management tools
  • futures - obligation
  • options - right (may / may not execute) - like insurances
  • risk premium

Graph View