A market is simply a collection of systems, processes, infrastructures or human relationships through which parties exchange goods or services for payment. The term market first emerged in the late medieval period and is still used in Europe and in the United States to describe the process of exchanging standard weights and measures for legal tender. Although in popular usage, the term market has various other meanings, the meaning that is commonly referred to is the buying and selling of goods or services on a market. Where there is competition, prices are set to ensure a market-efficient situation. For example, if the supply of wheat is outstripping the demand, prices will fall so that people will buy from other providers who will offer to deliver the wheat at a reduced rate.
Markets may be localized or global. In localized markets, the number of participants is small and they are located in different places. In the global market, where there are numerous participants from various countries, some central location provides a stable venue for trading.
Many think that the financial market refers to the New York Stock Exchange or the Chicago Board of Trade. However, the market is much broader than that. It includes stock exchanges, exchange-traded funds (ETFs) and the reporting of financial information to shareholders, among others. Financial markets may also refer to the futures and options market, commodity markets, foreign exchange markets and the spot market. Central banks play an important role in financial markets. Some of the examples are the Federal Reserve Bank, the Central Banks of Japan, Germany, England, China, Australia, South Korea and Switzerland.
In the financial markets, the buying and selling of currencies takes place in distinct places. One example is the U.S. dollar/Japanese Yen (USD/JPY), which means that the value of the dollar is determined by the value of the Japanese Yen. The buying and selling are done in various financial exchanges and market places such as Over the Counter (OTC), Spot, futures and options over futures exchanges. There are many participants in these markets, and they include individual retail traders, institutional investors, government and central banks, brokers, financial institutions and other trading participants.
As indicated, the major players in the financial markets are those who buy and sell currencies and other financial assets at auction market prices. The auction market, like the traditional commodities market, is the place between two parties and is composed of numerous buyers and sellers. Among the buyers are those from all parts of the world and there are also those from within the same country and from different countries.
The major participants in the auction markets are the institutional investors, banks, brokers, money managers, corporate giants, entities and other corporate giants who are constantly buying and selling currencies. The major participants in the Forex market are the big banks and financial institutions around the world. Although there are many small-scale traders, the volume of transactions in the Forex market is usually very high. The volume of the auction market is proportional to the level of the global demand for currencies, which are the result of globalization.