The essentials
- Stocks, bonds, currencies and commodities each have their own marketplaces and rules.
- Stock exchanges match buyers and sellers in a central order book during set hours.
- Interest rates set in bond markets influence the value investors place on shares.
The main markets
| Market | What trades | Where | Why investors care |
|---|---|---|---|
| Equities | Shares in companies | Stock exchanges and other regulated venues | Long-run growth |
| Bonds | Government and corporate debt | Mostly between dealers | Income; interest rates |
| Currencies | Exchange rates | Global dealer network | Returns on foreign assets |
| Commodities | Oil, metals, crops | Futures exchanges | Inflation, company costs |
| Crypto-assets | Bitcoin and other tokens | Crypto exchanges | High-risk speculation |
How a stock exchange works
An exchange is a marketplace with rules. Companies apply to list their shares, meeting disclosure standards. During trading hours, buy and sell orders from brokers meet in an order book, and trades happen when a buyer's price meets a seller's. Most exchanges open and close with an auction that sets official opening and closing prices, which index providers and funds use.
In the US, trading is spread across several exchanges and other venues, linked by rules that require orders to get the best displayed price. In Europe and Asia a single main exchange often dominates each country.
Indices: measuring the market
An index tracks the value of a defined group of shares. The S&P 500 follows 500 large US companies weighted by market value; the Dow Jones Industrial Average follows 30, weighted by share price; the FTSE 100, DAX, Nikkei 225 and Hang Seng play similar roles elsewhere. Index funds and ETFs let investors buy the whole basket in one go.
How the markets connect
- Interest rates: when bond yields rise, the future profits of companies are worth less today, which can weigh on share prices. See the economic calendar.
- Currencies: a UK investor holding US shares gains or loses as GBP/USD moves. See the forex guide.
- Commodities: oil and metal prices feed into inflation and into the profits of energy and mining companies.
Trading hours
Exchanges keep local office hours, so the global equity day runs from Asia to Europe to the Americas. Currencies trade around the clock on weekdays and crypto trades all week. The exchange board shows which are open now.
Reader questions
Why do stock markets have opening and closing auctions?
Auctions collect orders over a short period and set a single price, which gives a fair, widely used reference price at the start and end of each day.
Do I need to follow bond markets to invest in shares?
Not closely, but interest rates influence how investors value shares, so a broad awareness helps explain market moves.
Sources
- S&P Dow Jones Indices methodology
- FTSE Russell index ground rules
- U.S. Securities and Exchange Commission, Regulation NMS