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What's a Financial Market?

The Marketplace

A financial market, like any other market, is a place where buyers and sellers come together and well, buy and sell. What' s more, like any other market, the price of what's bought and sold is effectively determined by supply and demand.

Think of the financial pages of a newspaper. Not the stories, the opinions and the breaking news, but the pages and pages of numbers. What you're looking at when you look at these pages is a price list.

What's for sale? Government securities, futures contracts, option contracts, unit trusts ...

... but most of the available space is dominated by share prices, so that's where we'll start. For the sake of coherent presentation (and useful comparison) share prices are usually divided up into sectors. Here's an extract from the Financial Times showing the Bank sector.

Take HSBC. What we can see here is a current price of 845 pence.

Now in fact, if you wanted to buy shares in HSBC, 845 pence is unlikely to be the price you'd pay. In financial markets, prices change very quickly - sometimes on a minute by minute basis.

You wouldn't expect the price of a bag of sugar to change every ten minutes. So why do the prices of what's bought and sold in financial markets? To understand why, we need to understand more about how financial markets are structured and how they operate.



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