How Forex, Stocks & Crypto Markets Work

This is financial markets explained for someone who has never placed an order. We look at four markets a beginner is likely to meet on the same screen: currencies, gold, shares and crypto. They can look alike when they are all drawn as candlestick charts, but underneath they work in different ways, and those differences decide how prices move, when they move and what happens to your money if something goes wrong.

What a market is, in one paragraph

A market is simply a place, physical or electronic, where buyers and sellers agree prices. Some markets are exchanges: a single organised venue with a rulebook and a central list of orders. Others are over-the-counter (OTC): a network of banks and dealers quoting prices to each other and to their clients, with no single building or order book. Which type you are dealing with shapes almost everything else on this page.

The four markets side by side

The table describes typical behaviour, not a promise. Any of these markets can move violently on a surprise.

Currencies

Currencies are always traded in pairs, because buying one means paying with another. When you see EUR/USD at 1.1650, one euro costs 1.1650 dollars. The market is enormous and passes from Sydney and Tokyo to London and then New York through the week. Our forex lesson goes through pips, lots and spreads in detail, and the page on currency exchange explains the rates you see on travel money and bank transfers.

Gold

Gold is quoted in US dollars per troy ounce as XAU/USD. Most beginners meet it as a contract for difference (CFD) or a futures contract rather than a bar in a vault. It often reacts to interest rates, the dollar and moments of fear elsewhere in markets, though that pattern is far from reliable.

Shares

Shares are listed on exchanges such as the New York Stock Exchange, Nasdaq, the London Stock Exchange or the Tokyo Stock Exchange. Each exchange opens and closes on a timetable, so prices can jump between one day's close and the next day's open. The stocks lesson covers ownership, dividends and indices.

Crypto

Crypto-assets are recorded on public blockchains and traded on hundreds of platforms around the world at all hours. The same coin can have slightly different prices on different venues. See how crypto works for the mechanics.

What you actually own

This is the question beginners skip and should not.

• A share bought through a broker is normally held for you in a nominee account. It is legally your property, kept separate from the broker's own assets.
• A CFD on a currency, gold or an index is a contract between you and the provider. You own no currency or metal; you own a promise to be paid, or to pay, the difference in price.
• A coin on an exchange is usually a balance in the exchange's records, backed by coins in wallets it controls. A coin in your own wallet is controlled by whoever holds its private key.

Leverage and the rules around it

Leverage lets you control a large position with a small deposit, called margin. Regulators in the UK and EU cap it for retail clients: 30:1 on major currency pairs, 20:1 on gold, non-major pairs and major indices, 10:1 on other commodities, 5:1 on individual shares and 2:1 on crypto. Australia's caps are similar, and US retail forex is capped at 50:1 on major pairs. In the UK the sale of crypto derivatives to retail consumers has been banned since 2021.

At 30:1, a 1% move against a position wipes out 30% of the margin behind it. That is why the margin calculator is worth using before any leveraged trade.

Settlement and protection

When you buy a US share, the trade settles one business day later (T+1). A crypto transfer settles when it is confirmed on the blockchain. Forex and gold CFDs never settle into currency or metal at all; the position is simply marked to market every day, with an overnight financing charge or credit.

Protection also differs. Regulated brokers must keep client money separate from their own, and some countries add a compensation scheme if a firm fails. Many crypto platforms offer nothing comparable. Before you hand money to anyone, run through the ten provider checks.

Financial markets explained through one surprise

Imagine a central bank unexpectedly raises interest rates at 14:00 on a Wednesday. Here is how the same news could travel through each market, described in general terms rather than as a forecast.

• Forex reacts within seconds, because the currency market is open and higher rates can make that currency more attractive to hold. Spreads may widen for a moment while dealers adjust.
• Gold, which pays no interest, can come under pressure when rates rise, though it may equally rise if the move frightens markets.
• Shares in that country respond immediately if the exchange is open. If it has already closed, the reaction waits for the next opening auction and can arrive as a gap.
• Crypto trades straight through, often moving with the wider mood towards risk, with larger swings than the others.

The point is not the direction, which nobody can promise, but the timing and the size of the reaction. Knowing which market is open, and how violently it tends to move, is part of managing risk.

Where to go next

• How forex trading works, including a gold example
• Trading costs, added up on real-looking positions
• Glossary for any word on this page you did not recognise

Sources

• UK Financial Conduct Authority, CFD rules for retail clients
• European Securities and Markets Authority, CFD product intervention measures
• US Securities and Exchange Commission, T+1 settlement cycle