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MENTORING - Fundamentals - Financial players - Financial Institutions -…
MENTORING - Fundamentals - Financial players - Financial Institutions
Why do financial markets exist? They exist to transfer capital/money from those who have it to those who do not have it.
In this market the players are of various types on both savings side and investing side.
That means a financial market transfers money from those who save (SAVERS) to those who need it to invest in businesses (INVESTORS).
But money does not come cheap. The savers need a return on it. The investors need to earn a return on it while returning the money.
Along with them there are mediators who bring savers and investors together.
Who are the savers?
They are very very very very powerful because they are the providers of capital to the market.
Who are the investors?
Investors are those who invest on behalf of savers who cannot come to the market for various reasons.
Who are the middle men? The middle men are those who know the market inside out and breathe it everyday.
In what form the savers come to the market. They come in two forms: (a) as retailers, who directly invest/trade in the market; (b) as real money, who invest in the market, but get capital from retailers.
Real money is nothing but an aggregator of capital from retail public. It invests that money in the financial market over long term for a sustainable return. The various types of real money are: insurance companies, mutual funds, pension funds, endowment trusts, sovereign wealth funds (SWFs)
Real money brings real money to the market to invest. It is often very big and huge in size. They do not come with small money. They are thoroughly professional and take RISK very very very very seriously. They cannot afford to lose money.
So real money, which is generally on the savers' side, becomes an investor itself. However, sometimes they cannot invest due to various restrictions or under-knowledge. That is when they need the middle men, who know the market in depth.
Mostly these middle men are market makers, brokers and investment banks/broker dealers.
Market makers buy and sell daily in the market to profit from the differences in prices and to maintain an inventory all the time.
A broker does not buy and sell and does not maintain an inventory. He just connects the buyer and seller. Example, Zerodha. These people are also called dealers in some markets as there are specialists in some market.
These people provide liquidity to the market.
Along with these players there are those that benefit from short-term speculation. They are called speculators. Mostly hedge funds do this.
Now among these players there is a simple classification. That is the market has two sides. (a) buy side; and (b) sell side.
Buy side buys trading and execution services, while sell side sells trading and execution services.
Buy side comprises real money, hedge funds and any other large individual investors.
Sell side comprises investment banks (or broker-dealers). These people move the market. We are with them.
This sell side maintains a team of research personnel, sales personnel and traders (who are called institutional or execution traders).