Best Financial Markets to Trade: Looking to explore the best financial markets to trade in 2024? If yes, then don’t worry, you are in the right place. It is obvious that we can sometimes get confused in our decision-making when we are faced with the many different advice about financial planning, business and investments.
Whether you are a beginner or an experienced trader, this article on the best financial markets to trade in 2024 will help you make smarter investment choices by educating you about the major financial markets. So, without further ado, let’s get started
What are Financial Markets?
Financial markets in simple terms refer to the place where different financial assets or financial products such as stocks, currencies, derivatives etc. are bought and sold. Financial instruments include instruments such as stocks, bonds, treasury bills, etc.
In a broader sense, the term financial market includes different market segments based on the type of financial instruments. For example, the stock market, bond market, forex market, derivatives market, etc. come under the concept of financial market.
The financial markets are usually controlled by the country’s regulatory bodies, which aim to protect the interest of retail investors like us. For example in India, the stock market is governed by a regulatory body called SEBI (Securities and Exchange Board of India).
Further, the existence of financial markets helps to bring together the buyers and sellers to trade in their desired financial assets. Above all, the regulated financial market system helps maintain a disciplined framework for trading financial instruments.
Best Financial Markets To Trade in 2024
1. The Stock Exchange
The stock market is one of the financial market types that sounds familiar to most people, even though they are not aware of it. A stock exchange is a place where the shares of listed companies are traded.
Here, the companies are initially listed on the stock exchanges by issuing (Initial Public Offerings) IPOs where they issue the shares for the first time. Afterwards, the shares are traded on the stock exchange.
In India SEBI is the regulatory body and the two main stock exchanges are NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). The NIFTY 50 of NSE and SENSEX of BSE are the benchmark indices of the Indian stock market.
In recent years, with the growing digitization and awareness of financial planning, stock markets are attracting more people to it. According to the reports of the IMF (International Monetary Fund), global economic growth may fall from 3.4% in 2022 to 2.8% in 2023. After the general financial crisis that occurred during the last 3 years due to factors such as COVID- 19 pandemic, the Ukraine-Russia war, etc. growth is said to be uncertain in the financial sector.
More specifically if we talk about the Indian stock market, despite geopolitical facts wreaking havoc in the final quarter of FY22, the Indian stock market has delivered strong gains in the financial year 2022. The Nifty50 has earned a staggering 19% year-on-year increase in FY22, according to research by Motilal Oswal Financial Services, and ended the fiscal year with the second best returns in seven years.
The domestic market experienced volatility in FY23 due to various reasons such as strong monetary policy stances by global central banks, the Russia-Ukraine war and increased inflation. The Nifty 50 and Sensex indices gained about 2.5% increase at the end of May 2023. As the FMCG, Auto and Bank stocks among domestic sector indices turned out to be the best performers, the Pharma, Energy, Metals, Realty and IT stocks were the worst performers. performances so far in FY23.
2. The Derivatives Market
The Derivatives are the set of financial assets whose value is derived from the underlying assets. It is a contract between two or more parties to buy or sell an asset in the future at a predetermined price.
There are mainly 4 types of derivatives namely Futures, Options, Forwards and Swaps.
The derivatives can be traded on an exchange or over the counter. In the case of an exchange-traded market standardized contracts are exchanged while direct negotiations between the parties take place in the over-the-counter market.
The derivatives market has a history going back several decades when the Japanese rice traders used futures contracts to secure their production.
As far as Indian markets are concerned, the NSE started trading in the derivatives segment by launching the Index Futures in 2000. Later, it expanded into the options segment a year later in 2001.
The futures and options can even be traded for individual securities that meet the eligibility criteria given by SEBI. Currently, The NSE has emerged as the world’s largest derivatives exchange in 2022 with the highest number of contracts traded. The daily average turnover of equity derivatives has increased by 4.2 times in the last decade indicating the growth in the derivatives market worth 1.41 lakh crores in 2021.
Recently, the NSE has changed the expiry of the Bank Nifty Futures and Options from Thursday to Friday with effect from July 7 2023 and all existing contracts expiry dates will be revised later. This move of NSE after its counterpart BSE is introduced to lower the trading costs. As for traders, this move may help reduce volatility to some extent as the expiration lengthens.
3. Market of Goods
A commodity market is a place where physical commodities such as agricultural products, metals, petroleum, spices, etc. are traded within the regulations of regulatory bodies. In India there are 4 major stock exchanges namely MCX, ICEX, NCDEX and NMEX, these are exchanges similar to NSE and BSE for stocks.
Commodity trading helps to diversify and mitigate the risk as it allows the trader to hedge the commodities.
The Indian commodity market has experienced a series of fluctuations over the past few years due to global geopolitics such as the Ukraine-Russia War, the Covid-19 Pandemic, and many more. The trading volumes in the agricultural commodities segment have come down significantly after SEBI stopped trading in 7 Agri commodities including wheat, paddy, mustard, chana and others till December 2023 to control the inflation.
However, in a recent interview, the MD of the National Commodity and Derivatives Exchange (NCDEX) said that “the trading market will do very well in 2023 as NCDEX explores the new products that will be interesting for markets as well as investors”
Additionally, the Indian bullion market hit its peak in the third quarter of FY23 and MCX gold is trading at a 30-month high. As an added feather to the cap, the country launched India International Bullion Exchange (IIBX) in 2022 to provide an opportunity to import bullion into the country.
In short, investors can expect better trading opportunities in the Commodity Market.
4. The Foreign Exchange Market
Forex trading refers to trading in the currencies of different countries against each other. For example, Indian rupee against the US dollar. The Foreign Exchange market, also known as forex or currency market, has gained a lot of importance due to growth in international trade, ease of access to different markets through digitization, and many such factors. According to recent studies, the CAGR of the forex market is expected to grow by 7% during 2023-2028.
Among the various currencies, we see a major bull of the US dollar in the last year. This is due to several factors such as the increase in interest rates of federal banks caused an influx of more international capital resulting in the appreciation of the dollar. The forex trading market is a very volatile market that depends on several factors such as geographical, political and economic changes around the world. Therefore, it requires more knowledge and experience to enter forex trading.
5. The Cryptocurrency Market
Cryptocurrency is a virtual currency secured by the process of cryptography. It is designed to function as a medium of exchange through a computer network of blockchains. Unlike the regular currencies that are governed by the central bank of the country such as the RBI, there is no specific authority to govern the cryptocurrency that is traded around the world.
The data of cryptocurrency traders remains accessible only to the users of the network. The underlying blockchain technology is today used in many sectors such as banking, insurance and many more. Growing at a compound annual growth rate of 12.8% starting in 2021, the cryptocurrency market is estimated to reach $4.94 billion by 2030. Bitcoins, Litecoins, Ethereum, etc. are examples of cryptocurrencies.
Despite the rapid growth, most people find it a risky platform because it lacks legal oversight by authorized bodies.
6. Money Market
A money market is a place where short-term (typically within a year) financial instruments are traded. The basic motto behind money markets is to increase the financial liquidity of businesses. In India, RBI controls the operations of the money market. Instruments like Certificates of Deposit, Commercial Paper, Treasury, etc. are traded in the money market.
Need to Understand the Financial Markets
To become a successful investor or trader it is essential to have knowledge of all kinds of markets, which can be the stock market, derivatives market, bond market, etc.
But, most people focus on one type of market only, which may not be fruitful in the long run because all financial markets are interconnected with each other.
For example, if you just want to trade stocks and you don’t know about other market information like current exchange rate, recent national and international economic updates, etc. then you might not be able to trade properly in the stock market as any of the above mentioned reasons could be the cause of the price fluctuation.