What is a financial market and how does it work?

A financial market is a platform where buyers and sellers participate in the trade of financial instruments such as stocks, bonds, currencies, commodities, and derivatives. It is a mechanism through which savings and investments are channeled between individuals and institutions.

The functioning of financial markets is based on the principle of supply and demand, where the price of a financial instrument is determined by the interactions between buyers and sellers. The market price of a security reflects the consensus opinion of its value based on various factors such as the financial performance of the issuer, economic and geopolitical conditions, and other relevant information.

Financial markets provide a means for individuals, companies, and governments to raise capital and manage risks through various financial instruments. It also allows investors to diversify their portfolios and earn returns based on their risk appetite and investment objectives.