A market price is not a fact about the world. It is the last number two people disagreed about strongly enough to trade on. Everything else in trading follows from that single idea.
A price is an agreement, not a valuation
At any instant there are people willing to buy and people willing to sell. The highest price a buyer will currently pay is the bid. The lowest price a seller will currently accept is the ask (or offer). The gap between them is the spread.
No trade happens while those two numbers stay apart. A trade occurs the moment someone decides they would rather transact now than hold out for a better price — they cross the spread. That transaction price becomes “the price” you see quoted, until the next one replaces it.
The order book
Behind the single quoted price sits a queue of unfilled orders at every price level, called the order book. It is the market's real anatomy:
| Side | What sits there | What it means for you |
|---|---|---|
| Bids (below) | Buyers waiting at lower prices | Support in the literal sense — resting demand your sell order can hit |
| Asks (above) | Sellers waiting at higher prices | Resting supply that must be absorbed before price can rise |
| Depth | How much size sits at each level | A thin book means your own order can move the price |
When people say a market is liquid, they mean the book is deep — you can trade meaningful size without pushing the price far. Illiquid markets are where beginners get quietly punished: the price on the screen is not the price you get.
Who is on the other side?
It is worth being honest about this. Your counterparty is usually one of:
- Market makers. Firms that quote both a bid and an ask continuously and earn the spread. They are not betting on direction; they want to buy at the bid and sell at the ask thousands of times a day.
- Institutions. Pension funds, insurers and asset managers moving large size for reasons that have nothing to do with your chart — a mandate, a redemption, a rebalance.
- Hedgers. An airline fixing its fuel cost, an exporter locking in an exchange rate. They are willing to lose money on the trade because it protects their real business.
- Other speculators. Including algorithms that react faster than you can blink.
Notice that two of those four groups are not trying to profit from the price move at all. That is what makes markets tradeable — not everyone in them is playing your game.
Exchanges versus over-the-counter
Stocks and futures trade on exchanges: a central venue, a single visible order book, published volume, fixed hours. Forex and most CFDs trade over-the-counter (OTC): a decentralised network of banks and brokers, each quoting their own price.
This has a practical consequence people rarely explain. In forex there is no single official volume figure and no single official price — your broker's chart and mine can differ by a pip. Any strategy that depends on precise volume readings is on shakier ground in forex than in equities.
What actually makes price move
Price moves when the balance of urgency shifts. Not the balance of opinion — the balance of urgency. A million people can believe a stock is undervalued, but if none of them place an order, the price does not move an inch.
- 1Someone becomes impatient
A buyer decides waiting at the bid is no longer good enough and lifts the offer instead.
- 2Resting supply is consumed
Their order eats through the sell orders sitting at that level.
- 3The quote moves up
With that level cleared, the next-lowest ask becomes the new price.
- 4Others react
Momentum traders, stop-losses and algorithms respond to the move, which itself creates more urgency in the same direction.
Step four is why moves extend further than the original news seems to justify. Much of a large move is the market reacting to itself.
The costs nobody mentions first
| Cost | What it is | Typical impact |
|---|---|---|
| Spread | Difference between bid and ask, paid on entry | You start every trade slightly down |
| Commission | Broker's fee per trade | Fixed or per-share; matters most to frequent traders |
| Slippage | Getting a worse price than you clicked | Worst in fast markets and thin books |
| Overnight financing | Interest on leveraged positions held past the close | Quietly erodes long-held leveraged trades |
| Spread widening | Spreads expand around news and at session gaps | A stop placed too tight can be hit by the spread alone |
Check yourself
Next, we turn the abstract idea of a price into the thing you will actually stare at for hours: the candlestick chart.