What is How Markets Actually Work?
Bid, ask, spread, and the three order types every trade is built from — the literacy that comes before everything else.
Definition
A market is just buyers and sellers meeting at a price. The bid is the highest price a buyer will pay; the ask (offer) is the lowest a seller will accept; the gap between them is the spread — your unavoidable cost of entry. Every trade you place is one of three order types: a market order (fill now at the best available price), a limit order (fill only at your price or better, may not fill), or a stop order (becomes a market order once price hits a trigger — this is what powers a stop-loss).
Why it matters for trading
- A market order in a thin market can fill far from the screen price (slippage). A limit order protects your entry price but risks not filling — knowing which to use is half of good execution.
- A stop-loss is simply a stop order that closes a losing trade automatically. It is the single most important order you will ever use.
- You start every trade already down by the spread — which is exactly why scalping tiny moves on wide-spread instruments is a beginner trap.