Trading Concepts

Financial Markets Overview

Discover the wide range of global markets available with 

What are financial markets?

Financial markets are places where people and companies come to buy and sell assets like stocks, commodities, and other products. 
People have traded on financial markets for hundreds of years and they grew out of a very real practical need – to help people buy and sell things more efficiently, and to help companies that needed money to raise it more quickly.

Over the years, markets have grown bigger and faster. More people than ever before are now able to get access to these markets. Once they were the preserve of big banks, finance houses, and very wealthy individuals, but no longer.

Types of asset classes

Traders are able to access a wide range of financial markets but what are the main markets available and how do they work?

Made up of a basket of stocks, a stock market index can be traded like an individual product. By buying and selling indices, traders can speculate on the changes in price of the biggest companies in a single market. For example, the S&P 500 is one of the most widely traded indices globally – it is a measurement of some of the largest and most actively traded companies listed on the New York Stock Exchange or NASDAQ.

Also known as Forex or FX, the currency markets represent the constant exchange of currencies between banks and other market participants. Currencies are quoted as a currency pair – for example GBP/USD is the value of US dollar to the British pound. All currencies have a three-letter code. The currency markets, unlike many other markets, are open 24 hours.

Also known as equities markets, these represent the stock prices of companies that are listed (quoted) on major stock exchanges. Famous examples include Apple, Netflix, or Amazon.

Many commodities are resources that are eventually consumed, such as oil or wheat. Others are energy markets – like natural gas, while "soft commodities" include soybeans and cotton. Metals like gold, silver, or platinum are also classified as commodities. Each commodity market will have its own particular cycle, determined by specific factors like harvests or energy demands.

What affects the markets?

Market prices are driven by the supply and demand for goods which can be affected by a broad range of factors.  Here are some of the most common:

  • News: Many market participants keep tabs on news in real-time; bad news affecting a company or a country will often drive prices down, for example. Even political news can have a wide-reaching effect on markets
  • Central bank policy: Central banks make decisions such as setting interest rates, and these can have a profound effect on the flow of money around the world, which in turn will typically have a big impact on markets
  • Company earnings: Companies listed on stock exchanges will release regular earnings reports which may encourage investors to buy or sell their stock
  • Government data: Governments will release information which can move markets, like unemployment statistics or inflation data, for example

Market participants

There are a wide range of people and companies that trade in financial markets:

  • Institutional investors: Retirement fund and wealth management providers participate in financial markets to make profits for themselves and their customers
  • Banks: Banks act as brokers for other companies, like asset managers.
  • Brokers: Licensed specialists placing trades on behalf of their clients
  • Market makers: Brokers that quote both buy and sell prices for financial instruments thereby making a profit on the spread (difference) between the two
  • Retail investors: Individual investors can participate in financial markets through investing and speculating in CFDs such as stocks or commodities, or trading the highly liquid forex market

How are financial markets traded?

Typically, markets can be traded in two ways:

In the past, these were actual buildings where brokers met to buy and sell stocks or other assets, like corn or livestock. Now most exchange trading takes place online with orders being placed from all over the world.  Trading on an exchange means that contracts are standardized with a clear guidance on the quality, quantity, and delivery.

This is where two parties agree to buy and sell to each other directly, without trading on an exchange.