| The broad financial markets consist of the stock | | | | contract before having to actually accept delivery of |
| market, futures market, options market and bond | | | | the commodity. Some futures contracts are used to |
| market. Everyday billions of dollars are traded on | | | | predict the future value of stock indexes. |
| these different markets with each trader trying to | | | | The Bond Markets |
| leverage a good return on their investment. | | | | A bond is loan, a debt obligation where a company or |
| The markets can be divided as follows: | | | | government entity agrees to pay a guaranteed |
| The Stock Market | | | | amount of interest over a certain period of time in |
| Companies that are listed on the stock exchange | | | | exchange for the use of the money paid for the |
| make an initial public offering where they sell shares in | | | | bond. Bond holders have no right to any ownership |
| their company to raise capital. When the shares have | | | | of the company or entity, but the bonds are |
| been bought by the initial investors in the company, | | | | considered a safe investment because if the |
| these investors will then trade the stocks with other | | | | company goes bankrupt, they have to pay the |
| investors. The cycle of buying and selling then | | | | bondholders before the stockholders. |
| continues amongst the investors on the stock | | | | The Options Markets |
| market, each hoping for the price to rise so that | | | | Options contracts give the buyer the right, but not |
| they can make a profit. When you buy a share of | | | | the obligation, to buy or sell the underlying asset on |
| stock in a company, you are actually buying a part of | | | | which the contract is based, at a specific price on or |
| the ownership in that specific company. | | | | before a specific date. The purchaser must decide |
| The Futures Market | | | | whether to exercise the option and buy or sell the |
| Futures' trading is done on a commodities exchange. | | | | asset before the option period expires. The |
| This type of trading involves a financial contract | | | | underlying assets are usually stocks. |
| where you agree to buy or sell a commodity that is | | | | There is a vast amount of risk attached to these |
| still being produced at a set price on a specific date in | | | | markets and a novice investor would not be advised |
| the future. There must be a buyer and a seller. If | | | | to venture into these investments until they have |
| you buy a futures contract, you are agreeing to buy | | | | acquired a substantial amount of knowledge and |
| a commodity that is still being produced at a specific | | | | understanding of the trading world and financial |
| price and time in the future. If you sell a futures | | | | markets. A financial advisor and more specifically an |
| contract, you are agreeing to sell a commodity that | | | | experienced mentor would be an asset to your |
| is still being produced at a specific price and time in | | | | investment training and would help to streamline your |
| the future. Futures traders usually sell the futures | | | | approach to trading. |