Welcome to the World of Financial Markets

What are Financial Markets?

They are platforms (physical or virtual) where buyers and sellers trade financial instruments like stocks, bonds and currencies. They facilitate the flow of money in the economy.

Stocks

A stock represents a share of ownership in a company. When you buy a stock, you become a co-owner of that company.

• Price changes according to supply and demand.
• Potential for high returns (and risk).

Bonds

They are like a loan you give to a company or government. In return, they pay periodic interest and return the principal at maturity.

• Considered safer than stocks.
• Lower return than stocks.

Indexes (e.g., S&P 500)

An index measures the performance of a group of stocks. It serves as a thermometer for the overall market or a specific sector.

Bull vs. Bear Markets

Bull: A rising market where stock prices climb; investors are optimistic.
Bear: A falling market where prices drop; investors are pessimistic.

Risk vs. Return

Basic investing principle: the higher the expected return, the higher the risk of losing money.

Diversification: Why it matters

Strategy of spreading investments across asset types (stocks, bonds), industries and geographies to reduce risk.

• Reduces overall risk.
• Protects against volatility in a single sector.

Mutual Funds and ETFs

Investment “baskets” holding hundreds of securities, enabling easy diversification with a single purchase.

• ETFs trade like a regular stock on an exchange.

Fundamental vs. Technical Analysis

Fundamental: Studies a company’s financial health (earnings, debt) to find its true value.

Technical: Studies price charts to anticipate future moves.