What Is Credit market?

Credit markets are a key component of the financial system where various forms of debt are traded. Credit markets facilitate the buying and selling of debt instruments and loans.

Typical credit markets include:

• Bond markets (government and corporate)

• Loan markets (bank loans, syndicated loans)

• Money markets (short-term debt instruments)

Credit markets participants contain:

• Borrowers (governments, corporations, individuals, traders)

• Lenders (banks, institutional investors, individual investors)

• Intermediaries (brokers, dealers)

Credit markets provide financial market functionality like:

• Provide capital to borrowers

• Offer investment opportunities for lenders

• Determine interest rates based on supply and demand

• Facilitate risk transfer

• Offer leverage for traders

• Allow to hedge trading positions to make delta neutral trading strategies, often needed for market making and providing deeper liquidity

In decentralised finance, lending protocols take some of the role of credit markets.

See also:

• Lending protocol

• Aave

• Leverage

• Shorting

• Longing

• Market making