hello everybody and welcome to my YouTube channel I'm your Learning Partner suila hariharan and as per the you know suggestions given by many of my YouTube subscribers as well as my LinkedIn Pals I have decided to start a new format on creating content in um trade life cycle so I have already uploaded many Standalone videos on specific topics but these are lessons so when I talk about a lesson it's more like an integrated coverage of the topic of Investment Banking and you know the settlement process across different markets and therefore we'll try in this lesson methodology to create a comprehensive video on understanding various topics in this market so for example if you go for an interview with let's say one of the larg investment Banks like Goldman Sachs or Morgan standy wellso JP Morgan they will ask you questions around markets around trade life cycle so it's important to you know understand what goes behind the scenes as well and most likely participants give answers like yeah I know what are markets they like BC NSE right but that's not what the market only is there are so many other financial markets as well and this video which is the first lesson in trade life cycle aims to give you a comprehensive understanding of the financial markets across the world some some markets are currency markets some markets are stock market let's take a look at some of them when we talk about financial markets we could be referring to equity markets for those of us who are not yet familiar with terms in equity it's also called as common stock it's also called a share colloquially in India we call them as share market share Bazar Etc but let's just call them Equity markets so some of the largest Equity markets in the world are uh NYSC the New York Stock Exchange in the United States followed by NASDAQ the largest stock markets in Asia are Tokyo Stock Exchange and NSC that's the National Stock Exchange of India the largest markets in Europe are the London Stock Exchange which is the frankly a very very dominant player in the equity markets we also have markets where fixed income securities are traded so what do I mean by fixed income securities some countries in the world use the term as debenture markets some countries use the term bond markets but more or l let's just call it as fixed income markets for purposes of understanding fixed income let's call them as long term dated Securities okay dated means it has a maturity value and a maturity date some markets also trade Commodities like in India we have MCX is a multic commodity exchange we also have Commodities traded on the London Stock Exchange we have the Philadelphia Stock Exchange we have a large number of commodity contracts covering metals non-metals agry products Etc all traded in the commodity markets in fact one of the largest Commodities that is traded in the commodity markets is something which is influencing our daily life and that's really crude okay that's your Brent crude and WTI Crude Etc where the prices are closely watched by Traders across the world because they are very strong indicators as to how inflation is headed in these markets markets could also be currency markets there the foreign exchange markets which is literally a 24 by5 Market where currencies are traded in trillions of dollars every day so financial markets could cover any of this or a combination of two or three of them so let's try and understand how we categorize separate it out distinguish make a large number of changes in the markets uh prior to 1990s markets were largely physical buildings where Traders met physically to buy and sell but now the markets are largely trading platforms thanks to the extent of internet as well as uh a large amount of communication Network being put in place across continents across countries under the Seas over the skies trading platforms have now become the norm for markets in fact a market is recognized because of the qu volume of Trades that are taking place when I say NYSC is the largest market in the world it is because of the volume of Trades that are taking place followed by the value that is the market capitalization so markets are largely trading platform for participants to trade in financial assets okay these Financial assets could be equities Commodities fixed income money markets as well as currencies Financial assets basically are those that are denominated in currency an asset is defined as something that the organization owns why do you own an asset you own an asset because it gives you returns okay you own an asset because it gives you returns so all of us are uh some of us are students some some of us are working Executives and we own different assets we have fixed deposits in the bank if you are working in an organization we have gratuity we have Provident fund we have investments in mutual funds mutual funds so we have assets these assets have a rupee value attached to it so that we can liquidate it at that rupee value and the main reason why we holding these assets is because they generate returns to the owner of the asset all right so therefore Financial assets have how do we get to financial assets we get to financial assets because we earn money we save money we don't spend that money in a mall or at a pub Etc and we save that money and invest in financial assets the the features of financial assets are these two attributes okay denominated in currency and their generate returns so now you know many of us are big investors in gold right so gold is a financial asset and gold is a commodity as well so therefore we then bring into the concept of gold ETF which can be traded that's an exchange traded fund gold bees Etc and they would be called as Financial assets okay because they can be denominated in currency they generate returns to the investor so if you're holding only gold as a commodity you only get the returns cost because of appr preciation in the market value of gold yeah but in financial asset if you're holding gold bees that's bws or a gold ETF you will also get dividends from that okay okay so that's the distinction between gold as a financial asset and gold as a commodity and that's how we categorize the asset class now we go into this extremely rigorous categorization of markets let's get this Clear markets are markets because of the processes in place because there's regulatory surveillance there is a very high level of comfort in dealing in the market yeah so when we talk over here about markets it means that there are many many participants as I just told you a couple of minutes ago a market becomes important becomes crucial because of the volumes that are traded on it yeah if volumes go down the markets will find it very difficult to U sustain the business and therefore Market categorization is very important to understand so let's take a look at how markets are categorized on the basis of instruments that are traded okay that's on the basis of the financial assets that are traded we have Equity markets in India the largest Equity markets are the National Stock Exchange NSE and the Bombay Stock Exchange BC we then have Bond markets the bond markets are markets where fixed income securities bonds are traded currency markets where foreign exchange is traded the largest currency pair traded in the world is USD e that's the dollar euro pair and then we have the commodity markets as well which are extremely Global and volatile in nature okay so when you go onto a market you have to know what you're trading in right and then you got to choose the market all right not the other way around okay you can't say oh n offers me this so I'll start trading in shares yeah you got to go back to the share market and say well I want to invest in shares then let you go back to NC and say okay I'll trade on nsse so this is the basis of categorization the first categorization is according to the financial assets that are traded the second categorization is on the basis of Market structure now what do I mean by market structure Market structure means whether the market is organized like a stock exchange or a exchange plan platform or whether it is an OTC market OTC standing for overthe counter both these markets fulfill the objective of trading but the manner in which they fulfill are very different and that's how we categorize this according to the market structure so this is the second point of categorization that's the market structure we talk about exchange markets as well as OTC markets I'm going to drill down into this because it's very important to understand this Market structure funa a exchange okay is a centralized trading platform what do I mean by centralized trading platform this means all orders that are traded are rooted through the exchange it's a registered Brokers are members of the stock exchange and the buyers and sellers can only trade via the Brokers okay so this is a extremely important to understand the distinctions between centralized trading registered Brokers client trades so if you look at exchanges in India we have Equity markets which are like nsse and BSE we have commodity exchanges like MCX in the United States you have NYSC and NASDAQ you have LSC in Europe you have toky Stock Exchange so these are all exchanges where there is centralized trading and all the client orders are rooted through this centralized trading platform via registered Brokers any trade that does not take place via centralized trading will be called as off-market trading otherwise on an exchange centralized trading is an extremely important aspect of the structure of the market the second as opposed to exchange we have OTC or overthe counter markets which is decentralized trading decentralized trading means there is no centralized routing of the orders a buyer and seller has to find each other okay they have to discuss each other they have to know that this party is interested to trade in that particular security because there is no centralized matching of orders the client can trade either directly with each other or they trade bya dealers who are members of the OTC market so a common question that ask that is asked at many of the interviews is so what's the distinction between uh exchange traded Market and and OTC market let's drill that down on the point of exchange products that are traded on an exchange are extremely standardized okay because it is traded in numbers figures sizes settlement dates Etc which have to be understood in a uniform manner by all participants and therefore on an exchange you have very standardized products but on the OTC see that's the OTC market over the counter market the products are very customized to meet the requirements of both the counterparties which is better which is worse depends on what you want yeah if you want to have daily Maggie it's a standardized product yeah so you have noodles every day that's that's standardized product no problem you have milk you have tea standardized products but then you now want to have something exotic you want to have d dumplings okay you're watching a lot of you know these YouTube shots where Mr Haya comes in and then you say okay I want to trace some Chinese squeezy know some customized Vietnamese dumplings then you go on the OTC market extremely structured made to meet your requirements you want to have a you know a very exotic cake for your birthday you want to have three different level layers and three different flavors three different colors Etc then you go for the customized products otherwise for a black forest cake it's standardized product okay so it depends on what you want you can choose but can I choose to trade customized products on an exchange no unfortunately that's very very difficult not impossible if you're an Institutional Investor but difficult another point of distinction between exchange and OTC is exchange is centralized trading as I've already discussed all the orders have to be rooted through through the registered Brokers on the exchange OTC is decentralized trading okay decentralized trading is where counterparties directly trade with each other or through a dealer who finds counterparties to each other uh third point of distinguish distinction between exchange and otcs exchange has standard settlement procedures t+ one t plus two depending on which Market you're working in so the dates of settlement are also standardized on the other hand OTC is mutually agreed settlement procedures okay so the procedures the customization extends to the extent of uh mutually agreed settlement procedures as well so these are some of the points that distinguish OTC markets versus exchange markets exchange markets are regulated by sebi in the in in the Indian context and sec in the US context okay now I often come across participants and I love to ask this question is so does that mean OTC markets are not regulated I mean is there a lower level of Regulation is it like a market for money laundering and you know fund siphoning Etc no no no OTC markets are also regulated okay by sebi in India and sec in the United States it's not that they are not regulated it's only that they are less transparent it doesn't mean that they are less regulated at all okay the Third Kind of categorization of markets we've already seen two categorizations the one is the first one is according to the assets that are traded the second one is according to the market structure the third one is issuing and trading Market on this basis we have two kinds of markets the primary market and the secondary market so let's try and understand what is the meaning of primary Market a primary Market is a market where the issuer raises Capital directly from the investors okay so over here a company is Raising Capital directly from retail investors okay so we're not considering Venture Capital Investments we're not considering hedge fund Investments Etc we're talking more largely about the public markets okay so the primary Market is a market where the company that's issuing capital okay raises Capital directly from the investor so investors give Capital to the issuer the issuer then in return depending upon the nature of the capital issues bonds which are long-term debt instruments or equities depending on what is the main theme of the IPO the primary Market is therefore a market which could either be an initial public offering like an IPO Market this is the first time that the company has raised capital from the shareholders okay and the investors are putting in lots of money into the market and the company therefore issues them shares as a as as a contribution towards the capital that is coming it could also be a secondary offering like a rights issue which is done by companies to raise additional Capital once the company has raised money from the investors it must must must result into the instrument getting listed on an ex change or in an OTC market depending on whether it's Equity or debt the most important ense of the primary Market is its congruity towards a secondary Market okay so it must move towards the secondary market for the instrument to get listed so that the investors can trade in that and enjoy the benefits of holding and trading that security otherwise there's absolutely no point in having a prime primary Market without a secondary market so listing on a stock exchange is absolutely mandatory from the investor point of view a secondary Market on the other hand is a market where Traders just trade the instruments amongst each other with each other it results into a exchange or an OTC market so we've already discussed exchange and OTC on the basis of the nature of the instrument that is being Tred on the basis of the market structure secondary Market could either be exchange or it could be OTC in nature the fourth categorization of markets is one that is very very difficult to comprehend and that is Cash Market versus the derivative market so pay attention while I while while we navigate this topic on cash Market versus derivative Market a cash Market is also called as a spot Market this means means that the settlement takes place either on the same day t or t + 1 or t +2 T standing for trade date okay so in different countries in the world they will use different terms whether it's a spot Market it could be t+ one if it's a cash Market it could be same day delivery okay so the settlement takes place on the same day it's a cash Market if the settlement takes place on a t+ one or a t plus2 basis it's called as a spot Market a derivative Market is a market where the settlement takes place beyond the spot date on exchanges these are called as Futures and options Market fno as it is largely you know described amongst many of the YouTubers fno fno okay Futures and options are derivatives that are traded on the stock exchange we could also have OTC derivatives okay so understand this there is stock exchange there is spot Market there is derivative Market there is uh OTC market there is Securities Exchange all of them can have different kinds of products that are being traded let's do a Quick Knowledge check on what we know okay what we understood little price is awaiting those who give the answers rightly which Market is this traded on okay take a look at it I'm giving you all 30 seconds to decide which Market is this traded on is this traded on the equity Market is this traded on the bond market is this traded on the commodity Market or is this traded on the currency Market what do you think what does this look like to you I mean it's showing a price movement of almost from 120 to 150 wow okay and uh this is a currency pair of USG JPY so which Market is this traded on okay second question this is the share price of a stock called zamato uh and the headline from CNBC money control says that zamato shares are back above 100 rupees all right and the price range between 915 to 1130 was from 99 down to 97 way up again where will you trade this stock you think you trade it on the bond market or the stock exchange on the currency Market or on the commodity market so just putting your answers down and zamato is currency Market or USD JPY is share market okay yeah so just put in your answers in the comment section below and guess this product okay I've gotten a whole lot of calls and puts and I've highlighted something all right so this looks like it's going to be a derivative product so which derivative product has good calls and puts Etc of course I will be uploading a video on derivatives in the trade life cycle module as well with this specific topic on Futures options forward swaps Etc I've already uploaded Standalone videos so if you have if you have the time and inclination to learn just go through those videos because it'll be very helpful to know many more of these topics post your answers in the comment section below and let's learn together because the next lesson is going to be on understanding equities okay so lesson one is done lesson two is on understanding equities thank you so much for listening in