Markets are organisations set up to bring together buyers and sellers. There are markets for any of the asset classes that serious investors might own. General principles apply to all markets but we will deal here only with markets in stocks and shares.

Stock markets

These may be very large and sophisticated (like the London Stock Exchange - LSE - or the New York Stock Exchange - NYSE). Or very small and crude (like a group of traders meeting on a regular street corner in the financial centre of a developing economy). The ability to buy and sell stocks and shares almost instantly does not occur by magic, but because there is a market set up to do it.

Markets are a business like any other - the London Stock Exchange (LSE) is a quoted company (full name: London Stock Exchange Group plc). Like any business it needs high volume (so it encourages lots of trading) and trust in the product (so it provides regulation to prevent abuse).

Markets have rules

Every market has its own rules of business. The sophisticated markets have rules to encourage fair trading, prevent manipulation and provide a level playing field of information flow. The less sophisticated markets do not.

So the market you are trading in matters. Brokers' stock lists do not usually provide that information, a failing that the regulator is strangely unwilling to correct.

Each market decides what stocks can be traded, based on application by individual companies. So just because you have shares does not necessarily mean you can find a market to trade them.

Companies may chose to be traded on more than one market, to gain access to a wider spread of investors. Obviously, this is more likely to be true of international companies.

Shares/stocks as a generic class are often called 'equities'. But stock markets have expanded into trading other stuff (like bonds). So the particular bits of stock markets that trade equities are called 'Equity Markets'.

The London Stock Exchange

As a simple investor all the shares you buy will be on the LSE. Confusingly, the LSE comprises a number of markets, the most important one being the Main Market. The list of securities traded on the Main Market is called the Official List. If a company is on this list it is said to be 'listed'.

The LSE also runs the Alternative Investment Market (AIM) and other smaller markets in derivatives and other securities.

Each of these markets has its own rules of business and is subject to regulation. These rules and regulations will determine both the rules of the game (what trading and communication practices are allowed and what are not) and the allowed behaviour of companies that are listed. Companies can be de-listed, either at their own request or by edict of the LSE. If a company in which you invest is de-listed you will have to find a buyer for yourself.

Lessons for the simple investor:

• Initially, only buy shares listed on the Main Market. It is more tightly regulated than the others in the UK, and you have better protection. When you are more experienced you can expand to the AIM market.

• Be aware that even market professionals can use the terms 'Stock Exchange' and 'stock market' loosely. Even the word 'listed', which has a precise meaning, can be misused. Don't assume that they are necessarily referring to the Main Market.

• Sometimes shares are transferred from the Main Market to AIM. No need to panic, AIM is a perfectly respectable market, but you should perhaps consider selling at a suitable time.

• If shares you own are de-listed you can no longer sell them. (Well, you can try writing to the Company Secretary to see if he can help). This is a disaster for you. But take some comfort from the fact that shares that de-list without buying out the private shareholders are usually bust anyway. You win some, you lose some.

Futures Markets

Futures Markets are bets on the future. Their most common use in the trading of commodities but sophisticated traders also use them on stock markets to sell shares they do not own (‘short selling’ or ‘shorting’).

There is a price today for one share in Shell, or one barrel of oil. If you want a guess at the price of one share in Shell or one barrel of oil in three months time you must find it in a futures market and contract to buy or sell it. In three months time you will either take or make delivery, note the actual ('spot') price at that time and feel either pleased or annoyed at the price you contracted three months earlier. In the real world, for reasons we are not prepared to explain, you will most likely have already sold or bought back the contract you made earlier and no physical delivery would have taken place.

Futures markets are an essential part of modern markets, allowing flexibility and the diversification of risk in ways that would otherwise be impossible. But they carry hidden risks and only sophisticated investors should use them. As a simple investor you can manage perfectly well without them.