As a trading beginner, you may find it difficult to know which markets to trade. There are many active markets to choose from, each with its own features. Discover what markets you can trade as a new trader, and what you need to know about them.
This article at a glance:
- A financial market is a marketplace that lets you trade assets or derivatives at market prices.
- There are different types of markets, including stock, forex, commodities, crypto, and futures.
- The stock and forex markets are most commonly traded, and have relatively lower barriers to entry.
What are financial markets?
A financial market is a marketplace or exchange that enables individuals to trade assets or derivatives at market prices. The prices of these assets are driven by the forces of supply and demand. When supply outstrips demand, the value often diminishes. Similarly, when demand outstrips supply, the value typically rises. This pattern can be broken by unexpected events such as political conflict or a global pandemic, which can disrupt the markets and cause prices to be volatile.
Different types of markets to trade
Here are the different types of markets you can trade:
A stock market lists available shares and securities on a public stock exchange. Here, companies issue shares of ownership that can be publicly traded, enabling them to raise funds from everyday investors and institutional investors too. Eligible companies can issue shares to be publicly traded on an exchange or over-the-counter (OTC) market.
Remember – you can only buy or sell stocks of a company from an exchange where it is listed there. For instance, you can only trade Apple (AAPL), Meta Platforms (META) and Microsoft (MSFT) on NASDAQ, which has become the home for most major tech stocks.
The foreign exchange (forex) market allows you to buy and sell currencies. Each available currency is listed within a forex 'pair', setting the currency's relative value against the other. For example, the GBP/USD forex pair shows how much 1 GBP is worth in USD.
With some 6.6 trillion USD traded daily on the forex markets, there's often a trading opportunity to be found. The best starting points for beginners are those attracting the most liquidity - the 'major' currency pairs. These include the GBP/USD, as well as the EUR/USD, the USD/CHF and the USD/JPY.
A commodities market is a marketplace that enables the trading of primary products and raw materials from across the globe.
Commodities markets invariably contain ‘hard’ and ‘soft’ commodities. Hard commodities are natural resources such as oil and natural gas, or gold, whereas soft commodities refer to agricultural or livestock products, such as corn, coffee or wheat.
Fun fact: In March 2022, the prices of nickel rose by over 250%, trading at 100000 USD a ton at one point. The wild upsurge in the price of the metal, which had mostly traded in the range of 10000 - 20000 USD over the past decade, caused the London Metal Exchange to briefly suspend nickel trading.
A cryptocurrency market allows you to buy and sell crypto assets, exchanging them for other crypto coins or fiat (real world) currencies. Bitcoin (BTC) is the original cryptocurrency and remains the number-one crypto asset by market cap, followed by the likes of Ethereum (ETH) and Tether (USDT).
Cryptocurrency exchanges are typically not governed (although this is starting to change). As a relatively new financial concept, crypto assets remain highly volatile and susceptible to sharp price moves, which reinforces the importance of risk management.
The futures markets give individuals the option to enter a contract to buy or sell an asset at a pre-agreed price at a specific date or time in the future. These derivative products are traded on exchanges, such as the CME Group (US), the National Stock Exchange of India (India), the Shanghai Futures Exchange (China), or the Eurex (Germany).
The most commonly traded futures by volume include the 10-year and 5-year treasury notes, as well as the S&P 500 E-mini. Meanwhile, sugar, live cattle, gold and crude oil futures are also highly traded, as are NASDAQ 100 E-mini and Japanese Yen contracts.
A stock market index is a group of stocks that provide an accurate reflection of a particular industry or economy. For instance, S&P offers multiple industry-specific indices covering everything from banking and insurance to info tech and real estate.
Each index contains a cross-section of industry stocks. Some indices may cover more ground, giving you exposure to major equities within a national economy.
For example, the FTSE 100 consists of the top 100 most valuable UK stocks by market capitalization, and is an accurate guide to the strength of the British economy. (Market cap describes the market value of the company’s outstanding shares of stock, which can help you understand the comparative size of companies.)
What is the best market to trade for beginners?
The forex markets have the lowest barriers to entry. These 24/5 markets are highly liquid, meaning that there’s a large pool of buyers and sellers constantly transacting. Many forex brokers will also offer leverage, to help magnify the scale of your positions in the market.
Investing in the stock market is another common entry route for trading beginners. It’s always best to conduct research into the equities you buy and sell. Use fundamental and technical analysis to understand price movements and profitability, and track your stock choices in the news as well.
The abundance of available financial markets to trade underlines the potential opportunities. Ultimately, it’s all about picking the right market to learn the basics and gain confidence to trade.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorized to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.