INVESTORS AND THE FINANCIAL MARKET
An investor is any individual who entrust capital to a money generating asset expecting that the money entrusted will yield benefit in terms of finances. The investor sees his investment as an annuity which will be beneficial to him over life by bringing in income even when he is on retirement. The is a wide variety of sectors on which a person can invest among which we have commodities, mutual funds, bonds, exchange-traded funds (ETFs), silver, gold, and real estate.It is a habit that an investor studies the favorable sectors for investment so as to minimize risk and maximize return.
A financial market can be defined as a platform of exchange where goods and services such as commodities, financial security and other goods which are fungible and given at low cost of transaction as prices that are the same as that of demand and supply.In the financial sector the term financial market is used to the various markets that help to raise finance. Among which the following can be listed; capital market (stock market), bond market, commodity market, money market, derivative market, futures markets (forward contract for trading), foreign exchange market, spot market and interbank market.
Types of investors in the financial market/stock market
The stock exchange market is opened to any individual to buy stock, a number of factors influence the quantity and type of stock a person turns to buy. The analytical capacity of each individual who goes to buy stocks vary and how much risk a person can bear also vary so the kind and amount of stock different individuals purchase vary. In spite the various differences between people who go into the stock exchange market as an investor, they can be classified into the following categories
An active investor will always stay informed of how well is the stock he purchased from the financial market is performing. He always does research and pays close attention to the financial news. As a result he watches the trends in stock behavior before buying and selling stocks and not just buy stocks today in order to sell them tomorrow. An active investor does not necessarily hold on to the investment he purchased for a long period of time and he is careful and wise in the different sectors on which he invest.
A passive investor is a kind of investor who does not seek for the biggest gain at all time. The passive investor holds the investment from the financial market longer for about a year or more before he sells it.Due to fear of stress and to have more free time the passive investor goes for little gain stocks during his investment. They turn to buy funds from various sectors in order to spread risk. When a passive investor stock rises in percentage, he turns to sell some of the stock and collects the money as interest.
This type of investor seeks to make money very fast, as a result they search for those stocks in the financial market that have the potential to go up due to an upcoming deal.They frequently read the news to know which company innovative idea is about to create a positive impact to the society and they buy stocks from such companies. They easily sell their stocks once it has made them interest as they had predicted and they bear in mind that they can repeat the scenario of identifying an uprising company in the financial market and buying stocks to sell after.
As the retirement age of an investor in the stock market draws near, he turns to change the tactics. The level of risk they take at this stage is lower that is they turn to buy stocks of lower risk that have the potential of future growth. Following up the purchasing habit of such an investor we see that he purchases during his midlife stocks of moderate-risk and during retirement he moves to stocks of dividend.
Types of financial markets
For the money market to be regarded as a financial market is because it deals with short term borrowing assets, buying, selling and lending of these assets in view of a maturity of less than a year. The heart of the money market arises as banks use commercial paper to carry out interbank lending. The transactions are usually benchmarked to (that is to reference a price) the London Interbank Offered Rate (LIBOR) who set the terms and the currency. In the money market, trading is done over the counter that is the trading involves only the two parties.
It can be further divided into primary market (IPO) initial public offer and the secondary market (FUO) follow up offering. Markets in which one can purchase and sell equity-backed securities or long-term debt is referred to as a capital market.
Primary markets: in this market financial institutes such as investment banks that helps the government, corporations and even individuals in gathering financial capital. They do this by playing the role of their client’s representative in the act where security is to be issuance.
Secondary markets: in this market securities which have already been issued traded and settled and therefore it is referred to as the aftermarket.
Foreign exchange market
Also known as Forex the foreign exchange market is a market where currencies are traded and it is a global decentralized market.