The International Financial Market – What is it, Rules & More

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Source: career.cuchicago.edu

According to recent surveys and studies, the Covid 19 pandemic has significantly increased the number of individuals who are interested in the international financial market for the first time.

For those who are approaching the financial world, the first crucial step is to undertake a proper analysis of what the financial market is and how it works.

What is the market

Source: solace.com

The market is a place where it is possible to buy and sell “financial instruments”, that is, it is the place where demand meets supply and exchanges take place. This definition refers to both markets in the strict sense (such as the stock market, bond market, commodity market, etc.), and operators (such as banks) and policies aimed at making the financial market an efficient place of exchange.

Regulation is necessary to protect all operators involved and can be defined at both a macroeconomic and microeconomic level. In the first case, the rules will address the market as a whole and will be closely linked to the economic policies adopted by the government of the reference country.

In the case of microeconomic rules, the subjects involved are single individuals. The microeconomic dimension of the market is fundamental, and its characteristics influence the entire structure of the market, such as in the UK market.

It is in fact with the single exchange actions made by single individuals that the market price of a share is determined. It is therefore the choices made at the microeconomic level that determine the success of a security – here, for example, some of the best dividend-paying stocks for UK investors.

Stages of the exchange

The phases of the exchange of security on the financial market are Listing, Trading, Post-trading (which includes Clearing, Settlement and Custody). It is necessary and fundamental that each of the phases is well defined and that it follows the established rules; this is of fundamental importance for those who work in the market: only with well-defined rules will the operator be able to develop his own conscious strategy; in fact, the returns on securities derive from this definition.

Rules and transparency

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As mentioned, each market follows its own rules, and this means that each financial market is unique with respect to the economy in which it operates. One of the main characteristics of uniqueness is transparency, which is defined by governance rules, institutions, and operators.

Each market has its own supervisory body regarding the transparency of active operators: in the United Kingdom, for example, the relevant body is the FCA.

In fact, the more transparent the market is, the easier it will be for individuals to know and be aware of the processes relating to the exchange and this has a decisive influence on public expectations.

The subject of the exchange

The market was born and has reason to exist as a place for the exchange of goods such as shares, cryptocurrencies, bonds, commodities, currencies, precious metals and many other goods.

UK titles

Source: forbes.com

Each market follows its own rules and has its own trend influenced by different factors. Think of the stock market, its fluctuations depend on the public’s expectation of a given company’s performance; if a company performs badly, shareholders will quickly circulate the stock (selling it on the market) before it suffers a sharp decrease.

Another category are government bonds or gilts: financial instruments with a maturity of 1 to 50 years (or with no predefined repayment date), which generally provide for a fixed rate, paid every six months.

This instrument takes on two different guises: conventional gilts, with repayment of principal at maturity (default at 5, 10 or 30 years) plus fixed six-monthly interest; or indexed gilts, i.e. securities that take into account the rise or fall in inflation as measured by the UK Retail Price Index (RPI).