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FRM-1 Study Notes

Introduction – Markets

  • Exchange traded Markets
    • Market where individuals trade standardized contracts that have been defined by the exchange themselves
    • An Exchange acts as an intermediary which facilitates a regulatory oversight and hence makes the markets a safer place for trading
    • Chicago Board of Trade and Chicago Mercantile Exchange are two examples
    • Open outcry system and Electronic trading
  • Over the counter markets
    • There is no intermediary and no standardized contracts, parties can be created their own T&C
      with each other
    • Much larger than the exchange traded market in terms of value of underlying assets (more than 4 times larger)
    • Trades done between financial institutions or between financial institutions and clients. Financial institutions act as a market maker (quote both bid and offer)

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