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Chapter 2




Peter Read, CEO and Founder of Pelican
Apr 18, 2018


Hello again and welcome to Pelican Academy Chapter two. This section will explain what Financial Markets are and how you measure their movements.





What are Financial Markets?



As discussed in the previous section, the trades you place are a function of underlying financial markets. It is worth dissecting this. Nowadays, “Financial markets” are electronic mechanisms that allow users to buy or sell financial contracts. In the old days, all this was done by pencil and paper, with lots of shouting thrown in. Well known operators of such markets include the London Stock Exchange or Nasdaq in New York. The term “underlying” simply denotes that the prices that you enter or exit your trade are taken from the real market.

The simplicity and flexibility of the spread-bet contract means that thousands of markets are offered by brokers. These are split into 6 broad categories; foreign exchange, indices, commodities & metals, stocks, bonds and crypto currencies. These markets are all very different. 





Foreign exchange



Foreign exchange is the change in value of currencies against each other, just like when you swap pounds for euros at the bureau de change, or when the pound fell against all other currencies after Brexit. This is now one of the most frequently traded category.





Stocks



Stocks are where you can buy or sell shares in a listed company, for example Apple or Google or Vodafone. Spread betting or CfD trading on shares from around the world is very popular in the UK, particularly as there is no UK Stamp Duty to pay.





Indices



Indices are just a group of stocks put together upon which an average price is created. The most famous is index in the world is the Dow Jones 30 Industrial Average, over on Wall Street in New York. This represents the average movement of the 30 largest companies in the United States. The one mentioned at the end of the news is the FTSE 100, which like the Dow, is an average price of the 100 largest UK listed stocks.





Commodities



Commodities are the price of tangible products like a barrel of oil, an ounce of gold or a bushel of corn. Oil is the most popular product out of this category. 





Bonds



Bonds are the large loans that either governments or companies borrow, the price of them vary based on how the central banks move interest rates. These are the least traded products amongst the spread betting and CfD trading community.





Crypto currencies



Everyone today has heard of a cryptocurrency in one form or another. They are a new and very popular addition to trading platforms. These are alternative currencies based on a technology called “Block-chain.” The most famous one is Bitcoin, whose price soared in the final months of 2017, only to come crashing back down to earth earlier in the following months. We shall add more of these "Cryptos" in the coming months.


How do you measure market movement?



German shares are bought and sold in €, US shares in $ and UK shares in £, not to mention the 86 different currency pairs quoted on Pelican. In the interests of reducing confusion, brokers have distilled price movement across all markets down to “pips” or “points”. So whether you are speculating on the price of the Turkish Lira versus the Japanese Yen or shorting Facebook shares the outcome will be measured in pips or points against which a monetary amount is wagered. Nevertheless, markets have different unit sizes, which is why we need to understand the very important concept of leverage. Chapter 3 will reveal more…



Ready, set, go!


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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
Between 74-89% of retail investors lose money when trading CFDs
You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.



Spread betting and CFD trading are leveraged products and as such carry a high level of risk to your capital which can result in losses greater than your initial deposit. These products may not be suitable for all investors. CFDs are not suitable for pension building and income. Ensure you fully understand all risks involved and seek independent advice if necessary.
Pelican Trading is a trading name of London & Eastern LLP. London & Eastern is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 534484. London & Eastern is registered in England & Wales, registered office at 85 Great Portland Street, First Floor, London, W1 W7LT, company number OC345870.
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