Introduction to financial markets education

The world's financial markets offer rewarding opportunities for those with the right skills. Many are drawn by the allure of these markets but stories of fantastic investments and easy-made fortunes are often contrasted with others of fortunes lost. If you are considering a career in financial markets or would just like to learn the best ways to invest for yourself, you will need to know the ins and outs of how the world's many different financial markets operate. Gaining comprehensive knowledge in this field is not only valuable for aspiring professionals but also for investors and business leaders who want to make informed financial decisions.

This article explores some of the aspects of a financial markets education and delves into the structure and types of markets, all with a specific focus on South Africa's finance sector and the professional bodies and designations that apply to the local industry. By understanding these components, students and financial practitioners can develop the analytical and strategic skills needed to navigate markets and succeed in this fast-paced industry of bulls and bears.

 

Financial markets definition

Financial markets are platforms where buyers and sellers engage with each other to trade financial instruments such as stocks, bonds, currencies and derivatives. These markets underpin modern capitalist economies by facilitating the exchange of capital and liquidity, allowing for the efficient allocation of resources.

Financial markets are classified into primary markets, where new securities are issued and secondary markets, where existing securities are traded. The Johannesburg Stock Exchange (JSE) is a prominent example of a financial market in South Africa, providing a platform for the trading of equities and other financial instruments.

Through the efficient functioning of these markets, companies can access capital for growth, while investors can gain returns on their investments. An understanding of these markets will play a large part in the success of anyone looking to invest for themselves or pursue a career in financial services.

 

Importance of financial markets knowledge

Understanding financial markets is immensely important for both individual investors and professionals in the finance sector. Knowledge of these markets allows individuals to interpret economic indicators, evaluate risk and make informed decisions about where to invest.

Understanding market dynamics is particularly important in South Africa, where economic challenges such as currency fluctuations and political risk are prevalent. A solid education in financial markets allows professionals to navigate these challenges effectively, ensuring businesses and investors can capitalise on opportunities while managing potential risks.

South Africa has the largest stock exchange in Africa and its financial markets are evolving and further integrating with global systems, meaning there is growing demand in South Africa for professionals with expertise in market operations.

 

Overview of financial markets in South Africa

South Africa's financial markets are among the most sophisticated in Africa and the JSE is the largest stock exchange on the continent. The JSE gives access to both domestic and international markets and provides trading in five different markets: equity, equity derivatives, commodity derivatives, currency derivatives and interest rate products.

The country’s financial markets are highly regulated and transparent, promoting investor confidence and attracting foreign capital. The South African Reserve Bank (SARB) plays an importan support role by setting monetary policy and maintaining financial stability, ensuring that the markets operate effectively. South Africans can be proud of the fact that our robust financial system and regulations meant that, unlike most first-world financial markets, South Africa was relatively unscathed by the global financial markets crisis of 2008-2009.

South Africa serves as a gateway for investment into Africa. Its financial markets are characterised by high liquidity and robust infrastructure, making it a key player in facilitating cross-border transactions. As the country continues to grow its financial sector, those with a financial market education are best equipped to take advantage of the opportunities available.

 

Types of financial markets

Navigating the different types of financial markets can be very confusing to those without a financial market qualification. While terms such as equity markets and stock markets are often used interchangeably, there are some subtle differences that we will discuss in further detail later on. Things are further confused by the term "stock exchange" in the name of institutions such as the Johannesburg Stock Exchange and the New York Stock Exchange, which have evolved over time to offer many more financial instruments to trade than merely stocks.

 

Equity markets

Equity markets are platforms where ownership interests in companies are bought and sold. They are essential for capital formation, allowing companies to raise funds for expansion and innovation. The JSE serves as the primary equity market in South Africa, where investors can trade shares of various companies, from large multinationals to smaller enterprises.

The terms equity market and stock market are often used interchangeably, but an equity market is by strict definition a broader category of market. While stock markets allow for the trading of public shares or stocks, equity markets also include preferred stocks, private equity and venture capital. 

 

Stock markets

The stock market is the most well-known component of equity markets, providing a platform for the buying and selling of shares in publicly listed companies. Investors can benefit from both growth in the stock price and dividends, making it an attractive option for wealth accumulation. 

The JSE's stock market is known for its transparency and regulatory oversight, which helps to protect investors and maintain market integrity.

 

Preferred Stocks

Preferred stocks, or preference shares, represent a hybrid form of equity that combines features of both stocks and bonds. While they provide fixed dividends like bonds, they also carry equity characteristics, including the potential for the share price to increase. 

Holders of preferred stocks are also better protected should a company be liquidated as they have a higher claim on assets and will be paid out before common stockholders. These stocks are a popular choice for investors seeking stable income while still participating in the equity market. 

Preference stocks also differ from common stocks in that they do not confer shareholder voting rights, as is the case with common shares. 

 

Exchange-traded funds (ETFs)

Exchange-traded funds (ETFs) are investment funds traded on stock exchanges, similar to individual stocks. They offer investors exposure to a basket of assets, which could include stocks, bonds or commodities, without the need to buy each security individually.

For example, an investor could purchase a JSE Top40 or Dow Jones tracker ETF that owns a stake in all the top companies on the JSE or New York, respectively. This allows investors to benefit from the growth and dividends of a basket of large companies without having to purchase shares in each, which would be far costlier and usually involve more transaction costs to keep the portfolio matched to the size of the index that is being tracked. 

In South Africa, ETFs have gained popularity due to their low fees and ease of trading, making them an attractive option for both novice and experienced investors. They also allow South African investors to gain exposure to global markets without having to navigate complex exchange controls and overseas investment limits.

 

Debt markets

Debt markets, also known as fixed-income or interest rate markets, allow for the buying and selling of debt securities. These markets provide a mechanism for governments and corporations to raise funds by borrowing from investors. This is done by issuing bonds, which represent a contractual obligation to repay the borrowed funds along with interest over a specified period. In this way, they are similar to a home or car loan from a bank, except that the bank's role is replaced by multiple lenders and the sum that is borrowed is paid in a lump sum at the end of the specified period, rather than in regular instalments. 

Debt markets are generally considered to be lower-risk investments than equity markets, as they do not confer ownership rights and typically offer fixed returns. They are an attractive option for conservative investors seeking predictable income streams.

 

Bond markets

The bond market is a significant segment of the debt market, where various types of bonds are issued and traded. Bond markets offer long-term debt instruments where the borrower agrees to pay interest to lenders and return the principal upon maturity.

Government bonds, corporate bonds and municipal bonds are common instruments in the bond market. Investors typically seek bonds for their stability and regular interest payments, making them a regular component of a diversified investment portfolio.

 

Corporate bonds

Corporate bonds are debt securities that are issued by companies to finance their operations, expansions or new projects. They typically offer higher yields than government bonds, reflecting the increased risk associated with corporate borrowing. 

Investors in corporate bonds need financial knowledge to understand a company’s creditworthiness so they can more accurately calculate the risk-return profile of a corporate bond. The first JSE corporate bond was launched in 1992 and the JSE has since listed more than 1,500 corporate debt instruments on its interest rate market. 

 

Municipal bonds

Municipal bonds are a type of government bond that is issued by local governments, municipalities or their agencies to fund public infrastructure projects. Examples of large public projects that were funded through municipal bonds include the Rea Vaya bus system in Gauteng and the MyCiti bus system in Cape Town.

These bonds provide investors with a relatively safe, low-risk investment option, but with lower returns than more risky corporate bonds. Although this is not the case in South Africa, many countries offer additional tax benefits on municipal bonds, such as not having to pay tax on interest income. 

 

Derivatives markets

Derivatives markets involve financial instruments whose value is derived from the performance of underlying assets, such as stocks, bonds, commodities, currencies or interest rates. Derivative markets allow for the trading of these derivative products without owning the underlying assets. 

Derivative markets include futures, options and swaps. Their main purpose is to allow investors and companies to hedge against risks or speculate on price movements. The JSE’s derivative market allows the trading of bond derivatives, interest rate derivatives, equity derivatives, commodity derivatives and currency derivatives.

 

Futures and options

Futures and options are common derivatives that allow investors to lock in prices for future transactions. Futures contracts obligate parties to buy or sell an asset at a predetermined price on a specified date, while options provide the right, but not the obligation, to do so. These instruments are widely used for hedging and risk management purposes in South Africa's financial markets.

Futures are used on a variety of different assets, including currency, stocks and commodities and provide security when prices are volatile. For example, a wheat farmer could enter a futures contract with a buyer to sell their wheat at an agreed-upon price once the wheat is harvested. It could happen that there is a bumper harvest and the price ends up being much lower, in which case the seller benefits more than the buyer. But conversely, there could be a below-average harvest that year and the price ends up much higher and the buyer benefits.

Despite this risk to either party, both parties have the security of knowing that they will be able to carry out the trade at a specific price and can better plan their future cash flow around that price. Savvy investors can also use futures and options to take advantage of market volatility. The JSE offers single stock futures (SSFs) as well as contracts for difference (CFDs). 

 

Swaps and forwards

Swaps and forwards are customised contracts used to exchange cash flows or assets between parties. Swaps often involve exchanging interest rate payments, while forwards allow for the purchase or sale of an asset at a future date at an agreed-upon price. 

Swaps and forwards are over-the-counter derivatives used for hedging and speculation, which we will talk about in the next section. These instruments help businesses to manage their exposure to interest rate fluctuations and currency risks.

The most common type of swap is an interest rate swap, which the JSE has been offering since 2015. 

 

Hedging and speculation

Hedging and speculation are two strategies that are quite similar but are used for very different reasons. Hedging is usually a defensive strategy that is used to minimise risk, while speculation is a more aggressive strategy that takes on risk to increase potential gains.

Hedging involves using derivatives to protect against adverse price movements, while speculation entails taking positions in the market to profit from price changes. 

Derivatives markets rely on the hedging and speculation of investors and financial market players to ensure liquidity and enable price discovery, which is the process by which market prices are agreed between two parties.

Currency trading and foreign exchange (Forex) markets

The foreign exchange market, or Forex, is where the world’s currencies are traded. The Forex market is the world’s largest financial market. It operates 24 hours a day and averages $6.6 trillion in daily trade.

While the Forex market plays an important role in facilitating international trade and investment by allowing for the conversion of one currency into another, the majority of the activity on the Forex market is speculative. Combined with leveraging, Forex traders can potentially earn very high returns over a short period. This has resulted in Forex trading being the focus of many get-rich-quick schemes and success stories online, but it should be approached with caution.

While the gains can be enticing, according to Digital Monitor, between 70% and 90% of retail traders on the Forex market lose money. This means that the Forex market is not for the casual amateur investor. It is the arena of the world’s largest commercial banks, hedge funds, multinational corporations, central banks and the finest financial minds in the world. Those wishing to play in this market must be very certain that they have the skills and knowledge to successfully navigate the risks.

 

Spot currency market

The spot currency market is where currencies are traded for immediate delivery at the current market price at the time the trade is made. It is the most straightforward form of currency trading, allowing participants to exchange currencies on the spot. Any business involved in international trade relies on this market to determine current exchange rates and facilitate the conversion of currencies for transactions. 

Spot currency prices fluctuate throughout the day as the market reacts to new information, such as interest rate announcements or the release of a country’s inflation or gross domestic product (GDP) data. Spot currency trading is offered by most large banks as well as several online trading platforms. The JSE does not offer spot Forex trading, but it does offer the trading of many Forex derivatives, which we will talk about next. 

 

Forward and futures market

Currency forward and futures markets enable participants to lock in exchange rates for future transactions, protecting against currency fluctuations. These markets are particularly important for businesses with international operations, as they help manage the risks associated with currency volatility.

Forwards and futures are similar in that they both involve transactions that will happen at some point in the future, but they operate through different mechanisms. Futures trading is operated through exchanges such as the JSE. Forwards are traded over the counter and involve agreements made by two participants without the security or involvement of a third-party clearing house.

To learn more about how currency futures operate and the different options in South Africa, you can read this detailed futures market brochure compiled by the JSE.

 

Financial market course topics

 

Fundamentals of financial markets

Anyone studying financial markets needs to first understand their fundamentals. This foundational knowledge includes how markets operate, who participates in them and how they are regulated. 

UJ’s Advanced Diploma in Financial Markets programme starts with two introductory modules on financial markets. The first of these two modules focuses on interpreting information in interest-bearing markets, teaching students how to make informed decisions and determine the rates of risk and return. The second module focuses on equity markets, teaching students how to understand financial statements and the importance of cash flows, corporate finance, working capital and portfolio management.

 

Trading and investment strategies

A trading or investment strategy is a systematic approach that traders and investors use to inform their decisions. Different strategies can be used for different purposes. For example, a day trader at a bank would not use the same strategy as a financial planner advising an individual client on the best way to structure their retirement and reduce their tax liabilities.

While the strategies themselves differ widely, they require similar skills such as risk management, the ability to analyse market conditions and an understanding of how different financial instruments behave under changing conditions. UJ’s Advanced Diploma in Financial Markets includes two modules on trading in financial markets. These modules teach students how to make informed decisions and implement market orders in various different markets, such as derivatives, equities, foreign exchange and alternative investment markets.

We discuss two popular approaches to investment strategy in our FAQ comparing technical analysis and fundamental analysis of financial markets further on.

 

Risk management and compliance

Financial markets can be volatile and there are few certainties. "Past performance is no guarantee of future results" is a common warning that highlights the need to carefully manage risk. Investors need to know how to navigate these risks, balancing the appeal of high returns against their appetite for the inherent risk.

Financial market practitioners must also know how to adhere to the many rules and laws that apply to this highly regulated industry. These regulations range from relatively straightforward prohibitions such as those on insider trading to far more detailed rules such as percentage limits on the various financial instruments allowed in a compliant retirement fund.

A financial markets programme should teach students to identify, assess and mitigate risks, all while following best practices and complying with regulatory frameworks. UJ's Advanced Diploma in Financial Markets includes two modules that go into detail on South African legislation and the many laws that apply to the financial sector, such as the Credit Ratings Services Act and the Financial Markets Act. 

 

Financial instruments

Although many who work in the finance industry specialise in certain types of financial instruments or an even smaller subset of a particular instrument such as technology stocks or precious metals trading, a general financial market qualification should cover all of the more common financial instruments that are traded on the global market.

There are four main categories of financial instruments, each of which is traded on one of the four main types of financial markets we spoke about earlier. These instruments are equities (traded on equity markets), bonds (traded on debt markets), derivatives (traded on derivatives markets) and currencies (traded on the Forex markets).

 

Analytical and quantitative skills

A good financial market education will provide students with strong analytical and quantitative skills to navigate complex markets and make informed decisions. Both skill sets are important, but they differ in that quantitative skills are more specialised in handling numerical analysis and modelling, whereas analytical skills encompass a wider range of problem-solving abilities that include both qualitative and quantitative assessments.

Analytical skills refer to the ability to identify problems, gather relevant data and derive logical solutions. This includes critical thinking, data interpretation and effective communication of findings. Analytical skills are needed for evaluating financial securities, understanding market trends and making informed decisions based on qualitative insights as well as quantitative data.

Quantitative skills focus specifically on the application of mathematical and statistical techniques to analyse numerical data. This involves using models and algorithms to assess investment opportunities, evaluate risks and optimise portfolio strategies. Quantitative analysts, known informally as "quants", seek to uncover patterns and make predictions based on historical data through the use of methods such as regression analysis, time series analysis and various market simulations.

 

Understanding market dynamics

Earlier we highlighted the volatility of financial markets and warned that there were few certainties, but this does not mean they are entirely unpredictable. For example, investors tend to prefer bonds during times of high interest rates, while investor sentiment generally shifts towards equities in low interest rate environments.

Market fluctuations are driven by various factors and financial professionals must understand the market dynamics that drive these changes. Financial market courses or programmes that cover this topic will explore the factors that influence market behaviour, including economic indicators, investor sentiment and geopolitical events.

 

Professional certifications, bodies and institutes

Financial markets are highly regulated and financial practitioners require

These are some of the more common professional designations and certifications related to financial market practitioners, along with the professional organisations that are responsible for managing and regulating these designations.

 

Chartered Financial Analyst (CFA)

The Chartered Financial Analyst (CFA) designation is a globally recognised postgraduate professional certification awarded to finance and investment professionals by the CFA Institute. Finance professionals who qualify as a CFA have proven a high level of expertise in investment analysis and portfolio management. 

The CFA programme covers a wide range of topics, including ethics, quantitative methods and equity analysis, making it a valuable qualification for those seeking to advance their careers in the financial industry. 

The CFA Institute is a global body based in the US, but it also has CFA societies in more than 150 markets across the world, including South Africa. According to the CFA Institute’s benchmarking information page, the CFA qualification has been benchmarked by the South African Qualifications Authority (SAQA) as the equivalent of the South African National Certificate: Financial Markets and Instruments.

You can read our FAQ post further down for details on how to become a qualified CFA in South Africa.

 

Certified Financial Planner (CFP)

A Certified Financial Planner (CFP) certification is a postgraduate professional certification designed for professionals who provide financial planning services to individuals and families. The CFP designation requires a thorough understanding of financial planning principles, including personal finance, tax strategies, retirement and estate planning. 

The Financial Planning Institute of South Africa is the professional organisation responsible for CFP accreditation and certification in South Africa. CFP applicants must successfully pass the FPI’s professional competency examination and agree to abide by the FPI Code of Ethics and Professional Standards. Professional CFP members must also have at least three years of work experience in financial services or must have completed an FPI mentorship programme. 

Before they can sit for the competency exam, applicants require an NQF level 8 qualification in finance, such as a Postgraduate Diploma in Financial Planning or a BCom Honours in Financial Planning. Once registered for the assessment, CFP candidates must complete an eight-week financial plan capstone course and submit a financial plan for competency evaluation. 

 

Financial Markets Practitioner (FMP)

The Financial Markets Practitioner (FMP) certification is aimed at individuals seeking entry-level knowledge and practical skills in financial markets. This certification covers topics such as trading, investment analysis and regulatory compliance, providing a solid foundation for a career in finance. The FMP is particularly beneficial for those looking to start their journey in the financial services industry.

Here in South Africa, there are multiple professional organisations that handle FMP certification, including the South African Institute of Stockbrokers (SAIS) and the South African Institute of Financial Markets (SAIFM)

It is worth noting here that the SAIS also offers other more advanced certifications that are easily mistaken for that of a certified financial markets practitioner, including various certifications for financial market professionals that have the same FMP acronym. These new certifications were introduced by SAIS in 2024 and are aimed at people with more experience and qualifications.

 

South African Institute of Financial Markets (SAIFM)

The South African Institute of Financial Markets (SAIFM) is a leading professional body that promotes professionalism and integrity within South Africa’s financial markets. The institute offers various qualifications and training programmes aimed at enhancing the skills and knowledge of financial market practitioners. 

Membership provides access to resources, networking opportunities and professional development. SAIFM offers three tiers of membership: the affiliate membership aimed at entry-level practitioners, full membership for active and qualified professionals and fellowships for the most senior financial market professionals.

 

Chartered Institute for Securities & Investment (CISI)

The Chartered Institute for Securities & Investment (CISI) is a UK-based professional body for those working in the securities and investment industry. It offers a range of different certifications for financial market practitioners and it is the UK licence holder for the Certified Financial Planner (CFP) certification.

 

Financial Planning Institute of Southern Africa (FPI)

The Financial Planning Institute of Southern Africa (FPI) is a professional association for financial planners in the southern Africa region. The FPI offers various certifications and promotes best practices and ethics in financial planning. It is the South African licence holder for the internationally recognised Certified Financial Planner (CFP) certification.

The FPI provides resources, training and networking opportunities to support its members and it actively seeks to promote and grow the industry among South Africa's youth. It provides career guidance to students and runs the Young Financial Planners Organisation (YFPO) programme to support young entrants into the finance industry.

 

FAQs

Study an Advanced Diploma in Financial Markets with UJ

The University of Johannesburg's Advanced Diploma in Financial Markets is a fully online programme designed to prepare students for careers in finance, covering essential topics such as global investments, trading systems, financial advice and market regulation. Through a comprehensive curriculum, students gain in-depth knowledge of South African and global markets, emphasising the ethical and professional standards that are required by modern financial markets practitioners.

This programme equips students with a competitive edge, offering flexible, accessible education for aspiring professionals ready to navigate and excel in dynamic financial sectors. The qualification is rated at level 7 on the National Qualifications Framework, placing it on the same level as a Bachelor's degree and allowing graduates to proceed to higher postgraduate studies.

The programme consists of 13 modules and takes 20 months to complete. The first module deals with financial mathematics and those who already have a solid grasp of the mathematical skills needed can request to write an exemption exam. Candidates who pass this exam can skip the first module and only need to complete 12 modules.

Please look at the Advanced Diploma in Financial Markets page to begin your application or to learn more about how this qualification can enhance your financial expertise and career prospects.