There are quite a few financial markets out there for your investments, which can make choosing particular markets tricky. This article gives you an overview of four of the most important financial markets.

Stock Market

The stock market used to be known as the equity market, but it is still a place where sellers and buyers come together to trade shares or company stocks at values that show the effects of supply and demand. When you hear about markets, you hear about the stock market most frequently; and when people talk about market value, this is generally what they have in mind. In 2008, the stock market averaged about $40 trillion in size on any given day.

The stock exchange gives traders a market space where they can carry out their business. People participating in the market include institutional investors, retail investors, hedge funds, banks and publicly traded companies that are buying and selling their own shares.

The stock exchange is a place where sellers and buyers come together to trade shares or company stocks

There are several types of stocks, including the following:

European Stocks: When trading European stocks, there are several things to look for. Stocks with low spreads generally do much better in Europe, which has high volatility because of the trading times.

The European exchanges are just opening when the Australian and Japanese markets close for the day. Europe's stocks often reflect what just happened in Asia or is about to happen in the United States. If you’re interested in working with this exchange from the U.S., make sure that you keep a careful eye on the fluctuating relative values of the euro and dollar.

Large stock exchanges—including the United Kingdom, German, and French stock markets—can be highly liquid.

American Stocks: Almost 60% of the world's stock-market volume goes through the United States, which means that you have a considerable variety of sectors and stocks. The heavy trading volume makes a lot of these stocks highly liquid. The sheer number of traders means that the market can be volatile. The spreads are tight, with ranges between 1c and 3c. The same warning applies to traders from Europe as from the U.S.—if you plan to trade in American stocks from Europe, make sure that you are aware of the relationship between your local currency and the dollar.

American stocks account for 60% of the world’s market volume. The sheer number of traders means that the market can be volatile, with high liquidity.

What is a stock market index?

The purpose of a stock market index is to measure the worth of a particular part of the stock market. The biggest companies in each country form an index, and you can look at this concept as a particular stock portfolio that makes unique prices. One example is the FTSE 100, which is made up of the U.K.'s largest 100 companies in terms of market capitalization. Also known informally as the "Footsie," this is one of the most popular indexes in the world, measuring overall prosperity for businesses under U.K. company law regulation.   

When you are looking at a stock market index, you must examine several characteristics. First is liquidity—the bottom line here is that the more traders there are, the higher the level of liquidity. Major stock market indexes all have trading volumes to keep liquidity sky high. Larger indexes tend to have tighter spreads—as the indexes get smaller, the spreads get wider.

A stock market index measures the worth of a particular part of the stock market. The biggest companies in each country form an index.

Currency Market

Trading in the foreign exchange (or forex) markets originally came about to meet the supply and demand needs that investors, governments and companies had for different currencies. They exist to facilitate international trade as well as the movement of capital and money. This type of trade simply involves trading one currency in order to receive another.

There is no central location for the forex market, which instead works through an international network of individuals, corporations and banks looking to make trades involving two currencies. At first, only a few retail investors had access to these markets, and they would have to go through banks trading large currency amounts. Since then, much has changed, and forex has mushroomed into a business with $4.5 trillion in currency exchanges each day. Because it trades 24 hours a day, the forex market has more opportunities for change than others do, and it is the world's most liquid market for exchange.

When you trade forex correctly, you are on a fair playing field. The volatility can be extreme at times, because of the sheer volume and the high number of traders. The market size keeps things fair for everyone because there is no way for an entity to take over the whole enterprise.

Traded 24 hours a day, Forex is an exciting and very volatile market, and it is the most liquid market in the world. No one controls the forex market and no one ever will.

Commodity Market

In this market, sellers and buyers trade primary or raw products. There are two types of commodities: hard and soft. Hard commodities come out of a mine and involve natural resources, such as oil or gold. Soft commodities come from the agricultural industries, like sugar, coffee and grains. Supply and demand drive pricing, making the commodity market highly speculative.

The oldest method for investing in commodities is through the futures contract. This is a contract that two parties sign to exchange an asset for money at a set price, or by a set point in the future. This type of contract actually dates back to 18th century Japan. Farmers who took their pay in rice found that after some poor harvests they needed a stable system that would permit them to sell corn at a set price ahead of time. This gave farmers the security of selling their crops, and dealers made sure they had sufficient inventories to sell.

The commodity is a place where buyers and sellers come together to exchange raw or primary products. Supply and demand drive pricing, making the commodity market highly speculative.

Summary

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The stock exchange gives traders a place to swap money for stock, and vice versa.


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The biggest companies within one country come together to form an index.


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Forex can be a compelling market, offering liquidity and volatility.


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If you want to trade contracts, the commodity market could be a good idea.

 

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Comments

traddr
# traddr
Tuesday, June 10, 2014 3:23 PM
I am new to the world of trading. what market should I choose?
Community Support
# Community Support
Wednesday, July 23, 2014 4:50 PM
Hi Traddr,

Welcome to Tradingfo´s learning center.

As you´ve probably noticed, there are many markets to choose from and rather than simply choosing a random investment, you should try to get one that is suited for you.

There are various factors that need to be cleared up before you choose a market. Your choice should be based on your investment goals, interests, risk appetite, trading experience, personality, the money you have to invest with, and the time of day you wish to trade.

Check out "Choosing a market to trade in" article for more info.

Enjoy :)

Gino

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