Financial markets: forex, stocks, indices, commodities and crypto

When you start out, it is tempting to trade everything: a currency pair in the morning, a trendy stock in the afternoon, Bitcoin in the evening. Yet each market has its own rules, hours, players and way of moving. Knowing them saves you from nasty surprises.

Here is an overview of the five main asset classes open to a retail trader, and the criteria that set them apart: liquidity, trading hours and volatility.

Forex, the currency market

Forex (foreign exchange) is the market where one currency is exchanged for another. You always trade a pair, such as EUR/USD or USD/JPY: buying the pair means buying the first currency and selling the second.

It is by far the largest market in the world. According to the Bank for International Settlements triennial survey, around $7.5 trillion a day changed hands in 2022. It has no central venue: trading happens between banks and institutions all over the world, which keeps it open continuously from Sunday evening to Friday evening.

Its main drivers are central bank interest rates, inflation, growth and capital flows. The major pairs often move less than 1% a day, which is why leverage is so widely used.

Stocks and stock indices

A stock (or share) is a slice of ownership in a listed company, such as Shell, LVMH or Apple. Its price depends on the company's earnings, its outlook and overall market sentiment. Quarterly earnings releases often trigger big price gaps, sometimes more than 10% in a single session.

An index groups a basket of stocks to measure the health of a market: the FTSE 100 for London, the DAX for Frankfurt, the S&P 500 and the Nasdaq 100 for the United States. Trading an index lets you take a view on a whole economy rather than a single company, with less company-specific risk.

Stocks and indices follow their exchange's hours. The FTSE 100 trades from 08:00 to 16:30 London time, the DAX from 09:00 to 17:30 Frankfurt time (08:00 to 16:30 London time), and Wall Street from 9:30 am to 4:00 pm New York time, which is 14:30 to 21:00 GMT in winter. Many brokers also quote indices outside the session, with wider spreads.

Commodities: gold and oil

Gold (XAU/USD) is the safe-haven asset par excellence. It reacts strongly to US real interest rates, the dollar and geopolitical tension. It is quoted in dollars per ounce and trades almost 24 hours a day during the week.

Oil, through its two main benchmarks (Brent for the North Sea, WTI for the United States), depends on supply from producing countries, global demand and inventories. Weekly US inventory figures, usually released on Wednesdays, often move prices. Oil can be far more jumpy than the major currency pairs.

Cryptocurrencies

Bitcoin, Ether and other cryptocurrencies trade 24 hours a day, 7 days a week, weekends included. There is no central bank behind them, and their price depends largely on adoption, regulation and investor sentiment.

Their volatility is far higher than forex: moves of 5% or more in a day are not unusual. That is why the maximum leverage allowed for retail clients in Europe, the UK and Australia is the lowest here, at 2:1. Liquidity is also very uneven: deep on Bitcoin, thin on many small coins.

Comparing markets at a glance

Liquidity is how easily you can buy or sell without moving the price. A liquid market offers tight spreads and fast execution. An illiquid market can jump several price levels at once, especially at the open or around an announcement.

Markets do not live in isolation. A rising dollar often weighs on gold, and strong risk aversion pushes indices down and lifts some safe-haven currencies such as the yen or the Swiss franc. These links change over time, but you need to know them so you do not take the same risk twice without realising it.

Which market should you start with?

There is no universal answer, but a few principles help. Start with one or two assets you follow every day rather than hopping around. Pick liquid, low-cost assets whose hours match your free time.

• You are free in the afternoon or evening in Europe: US indices or gold during the New York session.
• You are free in the European morning: EUR/USD, GBP/USD or the DAX at the London open.
• You want to trade at weekends: only cryptocurrencies are open, and their volatility demands respect.
• You prefer calmer moves: the major currency pairs rather than oil or small-cap coins.

In the next lessons, you will learn to read a quote, measure a move in pips or points, and choose a position size that suits the asset you trade.