If you want to trade but do not yet know what, how or where, start here. By the end of this module you will know what the financial markets are, who moves them and what actually changes hands.
A financial market is simply a place where buyers and sellers meet to trade an asset. That is the whole idea. Everything else, the terminology, the platforms, the acronyms, is detail layered on top of that one sentence.
You have probably heard the markets called several different things: the stock market, the capital markets, or just "the markets". They are not all the same thing, but they work the same way. Somebody wants to sell, somebody wants to buy, and the price is whatever the two agree on at that moment.
To read a market properly you need to know four things: where it sits, who is trading in it, what is being traded, and why each participant is there. The four sections below cover exactly that, in order.
Work through these four in order. Each one answers a question the next one assumes you already know.
Three centres carry most of the world’s volume, Tokyo, London and New York, and between them the day never really stops. The markets themselves split into foreign exchange and money markets, equities, commodities, fixed income and ETFs, and emerging markets. Some trade on a formal exchange such as the New York Stock Exchange; others never touch one.
Retail traders are a small slice of the volume. The size sits with commercial and investment banks, brokers, and institutional investors such as pension funds and hedge funds. Above all of them sit central banks, the Central Bank of Nigeria, the Bank of Ghana, the Federal Reserve, who move markets not by trading them but by setting the price of money.
Exchange-traded means a centralised, regulated venue: NYSE, CME, LSE, LME. Over-the-counter (OTC) means the trade happens off-exchange, usually bank to bank through a dealer network. Currencies, most bonds and most derivatives are OTC. CFDs, what you will actually be trading, are OTC too.
A hedger is not chasing profit; they hold an underlying exposure and want to reduce the damage if the price moves against them, an importer locking in a naira rate, for instance. A speculator has no underlying exposure and takes risk deliberately, betting on direction. Most retail traders are speculators. Knowing which one you are changes how you size every position.
You now know what a market is and who is in it. The next module covers the instrument itself, contracts for difference, how the profit and loss maths works, and where the risk hides.
Module 01
If you want to trade but do not yet know what, how or where, start here. By the end of this module you will know what the financial markets are, who moves them and what actually changes hands.
The basics
A financial market is simply a place where buyers and sellers meet to trade an asset. That is the whole idea. Everything else, the terminology, the platforms, the acronyms, is detail layered on top of that one sentence.
You have probably heard the markets called several different things: the stock market, the capital markets, or just "the markets". They are not all the same thing, but they work the same way. Somebody wants to sell, somebody wants to buy, and the price is whatever the two agree on at that moment.
To read a market properly you need to know four things: where it sits, who is trading in it, what is being traded, and why each participant is there. The four sections below cover exactly that, in order.
The basics
Work through these four in order. Each one answers a question the next one assumes you already know.
An international flow of money chasing money.
Three centres carry most of the world’s volume, Tokyo, London and New York, and between them the day never really stops. The markets themselves split into foreign exchange and money markets, equities, commodities, fixed income and ETFs, and emerging markets. Some trade on a formal exchange such as the New York Stock Exchange; others never touch one.
The institutions that make prices move.
Retail traders are a small slice of the volume. The size sits with commercial and investment banks, brokers, and institutional investors such as pension funds and hedge funds. Above all of them sit central banks, the Central Bank of Nigeria, the Bank of Ghana, the Federal Reserve, who move markets not by trading them but by setting the price of money.
On an exchange, or over the counter.
Exchange-traded means a centralised, regulated venue: NYSE, CME, LSE, LME. Over-the-counter (OTC) means the trade happens off-exchange, usually bank to bank through a dealer network. Currencies, most bonds and most derivatives are OTC. CFDs, what you will actually be trading, are OTC too.
Hedgers and speculators.
A hedger is not chasing profit; they hold an underlying exposure and want to reduce the damage if the price moves against them, an importer locking in a naira rate, for instance. A speculator has no underlying exposure and takes risk deliberately, betting on direction. Most retail traders are speculators. Knowing which one you are changes how you size every position.