Introduction to financial markets and Forex

What financial markets do

A financial market connects participants who want to buy or sell an asset. Shares represent ownership interests in companies; bonds represent borrowing; commodities include physical resources such as oil. Currencies are the money used by different economies. Each market has its own rules and risks, so a rule learned for Forex should not automatically be applied to every CFD.

Participants include banks, businesses, investment institutions, central banks and individuals. They do not all trade for the same reason. A business may need dollars to pay an invoice, while a trader may speculate on a change in a currency pair. Their different objectives help explain why prices move even when there is no obvious headline.

There is no single worldwide Forex exchange

Forex is largely an over-the-counter network: transactions take place across venues and providers rather than on one central exchange. Prices can differ between providers, and access depends on the product and account. A chart from one source is not proof that another provider will execute at precisely that price.

A retail Forex or CFD position may give exposure to a price movement without delivering banknotes or ownership of the underlying currency. Read the contract and account terms. Leverage can make the position much larger than the money reserved as margin; this magnifies losses as well as gains.

A useful first habit

Before looking for a trade, write down what the quote means, which product you are viewing, and how a loss would be calculated. An exchange rate alone says nothing about the probability of a profitable trade. News, interest-rate expectations and market conditions can influence prices, but none provides a guaranteed outcome.