Types of Financial Markets
Financial markets come in different forms depending on what is traded, how it is traded, and who is involved. As a trader, you don't need to become an economist, but you do need to understand the basic "map" of the market landscape.
Understanding the Market Landscape
In this lesson, you'll learn the main types of financial markets and the most important ways they are classified: by asset type (forex, stocks, bonds, commodities, derivatives) and by trading structure (spot vs derivatives, exchange-traded vs over-the-counter).
π‘Once you can see how these markets fit together, it becomes much easier to understand where your own trading fits in.
What Are the Main Financial Markets by Asset Type?
One simple way to classify markets is by the type of asset being traded. The main categories you will see are:
Forex Markets
Currencies are traded in pairs (e.g. EUR/USD, GBP/JPY). This is the largest and most liquid market in the world.
Stock Markets
Shares of publicly listed companies are traded on exchanges like the NYSE or London Stock Exchange, or as CFDs with brokers.
Bond Markets
Governments and companies issue bonds to borrow money, and investors trade these debt instruments with each other.
Commodity Markets
Physical goods such as gold, oil, natural gas, agricultural products and metals are traded, often via futures, options and CFDs.
Derivatives Markets
Contracts whose value is derived from an underlying asset or index (for example, futures, options, swaps and CFDs).
Many retail traders mainly interact with these markets through CFDs or spot trading offered by brokers, but it's still useful to know the underlying asset class.
Spot Markets vs Derivatives Markets
Another important distinction is between spot and derivatives markets.
Spot Markets
Trades are agreed and settled "on the spot" or very shortly after (typically within two business days). Examples include most cash forex and some stock trades.
Derivatives Markets
You trade contracts that derive their value from an underlying asset or index. Examples include futures, options, swaps and many CFDs offered by retail brokers.
Key Point: As a retail trader, when you trade a CFD on gold or on an index, you are in a derivatives market, even if your platform looks like you are trading the underlying asset directly.
Exchange-Traded vs Over-the-Counter (OTC) Markets
Financial markets can also be classified by where trading takes place: on a centralised exchange or in a decentralised over-the-counter network.
Exchange-Traded Markets
Trading happens on a centralised exchange with standardised contracts and transparent order books. Examples include stock exchanges and many futures exchanges.
Over-the-Counter (OTC) Markets
Trades happen directly between participants (banks, brokers, institutions) without a central exchange. Forex and many derivatives are primarily OTC.
When you trade forex or CFDs with a broker, you are usually accessing an OTC market, even if your platform looks similar to an exchange screen.
Example: One Asset, Multiple Markets
Take the price of crude oil as an example:
Physical commodity market: Physical oil is traded between producers, refiners and consumers.
Futures exchanges: Standardised contracts on oil are traded on exchanges such as the CME.
OTC derivatives market: Banks, funds and brokers may trade oil-related contracts directly.
CFD platform: A retail trader might trade oil via a CFD that mirrors the futures price.
Even though all of these are connected to "the oil price", they are part of different markets with different rules, participants and trading mechanics.
Where Do Retail Traders Fit in This Picture?
Most retail traders access financial markets through:
Spot Forex Accounts
Trading currency pairs directly, often with leverage.
CFD Accounts
Trading price movements on forex, indices, commodities, stocks and crypto.
Stockbrokers
Buying and selling actual shares or ETFs on exchanges.
Even though you see a single price chart and a simple buy/sell button, behind the scenes your broker might be connecting you to a mix of exchange-traded and OTC liquidity, often through liquidity providers and other institutional participants.
Common Misconceptions About Financial Markets
"There is just one big market for each asset."
In reality, the same asset can trade in different venues and forms (spot, futures, options, CFDs), each with its own prices and rules.
"Retail trading is completely separate from the real markets."
Retail trading usually sits on top of the same underlying markets, but access is provided via brokers and intermediaries.
"Exchange-traded markets are always better than OTC."
Exchanges offer transparency and standardisation, while OTC markets can offer more flexibility, customisation and, in some cases, deeper liquidity.
Quick Checkpoint: Can You Classify Markets?
Try to answer these questions in your own words:
- Which asset types are traded in forex, stock, bond, commodity and derivatives markets?
- What is the difference between a spot market and a derivatives market?
- How do exchange-traded markets differ from OTC markets?
- Where do your own trading interests fit in this map?
Tip: Being able to "place" any market you hear about into these categories is a key step in understanding market structure.
Frequently Asked Questions
Which financial market is best for beginners?
There is no single "best" market, but many beginners start with major forex pairs or large stock indices because they are liquid, widely traded and well-covered in analysis and education.
Are CFD markets different from the "real" market?
CFDs are derivative products that mirror the price of an underlying market (such as a stock, index or commodity). You don't own the asset, but you do participate in its price movements. The underlying "real" market still sets the core price.
Is the forex market an exchange or OTC market?
The global forex market is primarily an OTC market, where banks, institutions and brokers trade directly with each other. Some forex products (like futures) are traded on exchanges, but most spot FX volume is OTC.
Can one asset trade in multiple markets at the same time?
Yes. For example, a stock can trade on an exchange, while derivatives on that stock (options, futures, CFDs) trade in separate derivatives markets, all linked to the same underlying company.
Summary: The Market Map You Need in Your Head
Financial markets can be grouped by what is traded (currencies, shares, bonds, commodities, derivatives) and by how trading is organised (spot vs derivatives, exchange-traded vs OTC).
As a trader, understanding these basic types of markets helps you:
- Know what you are really trading when you open a position.
- Understand where your broker fits into the wider market structure.
- Choose markets that match your risk tolerance, time horizon and style.
Next Steps: In the next lessons, you'll look at primary vs secondary markets and different market participants, which will add more detail to this overall picture.
Continue Your Learning Journey
Ready to explore more market structure concepts? Dive into related topics or start your personalized trading course.