Basic Definitions

In order to discuss financial theories properly it is necessary to know the basic economic terminology. The definitions will be introduced but not further elaborated. For a much more comprehensive list of financial terms and their exact definitions I recommend [Investopedia] (https://investopedia.com) or a basic Economics textbook.

Every market, for every product, consists of agents buying and selling that product. The prices paid or received by an agent change continuously based on supply and demand. Every rational agent acts based on his best interest thus buying for a lower and selling at a higher price, trying to take the difference as profit. If for instance seller A offers the product at a lower price then buyer B is willing to pay every rational agent would seize this opportunity, buying the product from vendor A and selling it to B, pocketing the difference. This is a risk-free investment opportunity with a guaranteed profit, called arbitrage. Financial markets function just like these other markets, difference being that the products bought and sold often are intangible and difficult to grasp concepts like liabilities and rights. It is however crucial to understand that the price mechanisms of financial markets are based on the same principles as any other market. Nowadays there exists a wide variety of financial markets where investors can choose from a giant selection of available products. Here is a (incomplete) list of popular Financial Markets: * Stock Market * Derivative Market * Interest Rate Market * Bond Market * Commodity (Corn, Wheat, Metals, …) * Energy Market (Oil and Gas) * FX (Foreign Exchange)

Thus it might not seem entirely obvious where to invest money when starting out.