What is the "Market"?
The market is simply a place where buyers and sellers exchange assets. When you hear "the market went up" or "the market crashed," it means the prices of assets changed because of buying and selling activity.
How the Market Actually Works
The Technical Reality
At its core, the market is a Matching Engine - specialized software running on servers owned by an Exchange (like NYSE, NASDAQ, or CME).
What it's made of: A giant database called an Order Book. On one side is a list of people wanting to buy (Bids), on the other is a list of people wanting to sell (Asks).
How it operates: The engine follows a strict rule called Price-Time Priority:
- Price: The best price (highest buyer / lowest seller) always goes first
- Time: If two people want the same price, whoever got there first goes first
What drives it: Imbalance. If there are 1,000 buyers at $10 and only 10 sellers at $10, the engine "eats" those 10 sellers instantly. Since there are still 990 buyers left and no more sellers at $10, the engine must move to $10.01 to find the next seller.
Price only moves because one side runs out of people at a certain level.
The engine:
- Does not think
- Does not predict
- Does not "know" trends
- Does not care who you are
It just matches compatible orders.
At the technical level, the market is a queue + a referee.
The gap between the best bid and the best ask is called the spread. It is the basic cost of trading, and it is why a new position starts slightly behind. Change the spread below and watch what it costs:
Try it · Spread Visualiser
Tight spreads are typical on major pairs in busy hours; wider spreads are common on exotic pairs, in quiet hours or around news.
Advanced options
Some accounts charge a commission on top of a tighter spread.
Shows how much of it the spread uses up.
Cost of the spread
$20.00
Buyers pay the ask, but an open position is valued at the bid. With a 2-pip spread on 1 lots at $10.00 per pip, the trade opens −$20.00 behind. Price has to move 2 pips in favour just to reach break-even.
| Spread | Cost at this size |
|---|---|
| 0.2 pips | $2.00 |
| 0.5 pips | $5.00 |
| 1 pips | $10.00 |
| 2 pips | $20.00 |
| 3 pips | $30.00 |
| 5 pips | $50.00 |
Spreads change constantly and differ by broker and account type. This shows the cost of a fixed spread you choose; it does not include slippage, swaps or other fees.
How was this calculated?
- Ask = Bid + Spread = 1.10000 + 2 × 0.0001 = 1.10020
- Value of one pip at 1 lots = $10.00
- Spread cost = 2 pips × $10.00 = $20.00
The Practical Reality
The market is also the collective result of millions of independent participants interacting through that engine.
All intent comes from participants - banks, funds, corporations, traders, algorithms. They decide where to bid, where to offer, when to cancel, when to chase, when to refuse.
The engine merely enforces the consequences of those decisions.
So when traders say "the market decided" or "the market rejected a level," that's shorthand for:
Participants collectively stopped agreeing at one price and only agreed at another.
There is no wizard. There is no mind. Just emergent behaviour.
Why You Need Both Views
If you only understand the engine:
- You think trading is purely mechanical
- You over-focus on order book tricks
- You miss intent and context
If you only understand the people:
- You think the market has emotions
- You invent narratives that don't exist
- You miss the mechanical reality
Real understanding combines both:
People create intent → Orders encode intent → The engine enforces rules → Price changes expose consequences.
Who Runs It?
Depends on the market:
- Stocks → centralized exchanges (NYSE, NASDAQ)
- Futures → centralized exchanges (CME)
- Forex → decentralized network of banks and liquidity providers
In Forex especially, there is no single "market." Price is an aggregate of many venues. Your broker routes orders to liquidity providers. Prices are constantly synchronized across the network.
Simple analogy:
- The Market = The Stadium (The Exchange)
- The Players = The Crowd (Banks, Traders)
- The Matching Engine = The Referee/Rulebook
- The Candlestick = The Scoreboard
What is Traded?
Stocks
Shares of ownership in a company. When you buy a stock, you own a small piece of that company. Stock prices go up when more people want to buy than sell, and down when more people want to sell than buy.
Indices
A collection of stocks grouped together to represent a market or sector. For example, the S&P 500 tracks 500 large US companies. You're not buying individual companies - you're trading the overall performance of the group.
Forex (Foreign Exchange)
Currencies traded against each other in pairs (EUR/USD, GBP/JPY). You're betting one currency will strengthen or weaken against another. The largest and most liquid market in the world.
Commodities
Physical goods like gold, oil, wheat, or coffee. Prices move based on supply and demand for these raw materials.
Crypto
Digital currencies like Bitcoin and Ethereum. Highly volatile, trades 24/7, and moves based on speculation, adoption, and market sentiment.
Futures
Contracts to buy or sell an asset at a specific price on a future date. Used for speculation and hedging. Allows you to trade with leverage.
Market Participants
Not everyone in the market has the same power or purpose:
- Central Banks - Set interest rates and monetary policy. Their decisions move entire markets.
- Commercial Banks - Handle massive currency transactions for clients and themselves.
- Hedge Funds - Large pools of money using advanced strategies to profit.
- Multinational Corporations - Convert currencies for international business operations.
- Retail Traders - Individual traders. The smallest fish in the pond.
Retail traders don't move the market. They read the market and position to profit from moves created by larger players.
Banks and Large Players
Banks have two non-negotiable constraints:
- They must trade huge size
- They must control average price
Those two constraints force them to trade slowly and strategically.
Final truth (no fluff):
Yes, the market is fractal. But capital is not evenly distributed across fractals.
Money is hierarchical. Intent is hierarchical. Authority is hierarchical.
Patterns may appear to be the same on the surface, but the underlying forces are completely different.
Buyers and Sellers
Trading is a battle between buyers and sellers.
Buyers believe the price will go up. They want to buy now at a lower price and sell later at a higher price.
Sellers believe the price will go down. They want to sell now at a higher price and buy back later at a lower price.
At any moment, one side is winning. Your job is to figure out which side has control and join them.
What Are Orders?
An order is just a request to buy or sell. An order is just an instruction.
That's it.
If you go to a shop and ask for apples, that's an order.
"Buy" "Sell"
In trading, it's the same thing but you don't buy apples — you buy or sell price.
But orders by themselves do nothing. They only matter and are fulfilled when two orders meet.
A trade happens when:
- One person wants to buy at a price
- Another person wants to sell at that same price
- They agree
It's just the execution of two matching orders.
Types of Orders
There are only two types of orders:
Market Order = "Buy/Sell RIGHT NOW"
(Market buys/sells → move price)
This is what most beginners use.
You are saying:
"Price doesn't matter. Fill it immediately."
Limit Order = "Buy/Sell ONLY at this price"
This is the opposite.
You are saying:
"Buy ONLY IF price comes to this level."
So it just sits there, waiting for price to come to the agreed price, and then the order is executed.
The order has been placed but not entered yet. As far as price is concerned, nothing has happened.
Two other order types are combinations of these two. A stop order waits for price to reach a level and then becomes a market order. A stop-limit order waits for a level and then becomes a limit order.
The practice market below shows how every order type behaves. Place one, move the price, and watch exactly when it fills:
Try it · Order Type Simulator
Buy limit
- Buy only at this price or lower.
- Where it goes: Below the current price.
- Why use it: To buy on a pullback, at a better price than the market offers now. It may never fill if price never gets there.
What is happening
- The practice market is at 1.1050. Choose an order type and place an order.
This is a simplified practice market with a single price: it has no spread, no other traders and no liquidity limits. Real orders can fill at different prices, or not at all. Nothing here is real money or a trading signal.
What Moves Price?
Price moves when trades can no longer happen at the current price. Price moves when one side is no longer willing to trade at that price, forcing trades to occur at worse prices.
Imagine a fruit stall:
- Apples cost £1
- People keep selling apples to the stall owner
- He keeps buying at £1
As long as:
- He keeps buying
- Sellers don't need to accept £0.90
The price stays £1.
Even though apples are changing hands constantly.
So price does not go LOWER (or HIGHER), even though trades are happening. Trades can happen without price moving to a new level.
Price only moves down if there are more willing sellers than willing buyers. Similarly, price only moves up if there are more willing buyers than willing sellers.
And price stops moving when there is a balance of buyers and sellers because an equal amount of buyers wanna buy at the same price the sellers want to sell. Everyone is happy. But now if there is a surplus of buyers, there is now higher demand so price increases to entice more sellers to sell, until they match again. It is this constant search for equilibrium.
Price stops at a standstill when incoming sellers meet enough waiting buyers at the same price. Price moves when one side runs out.
The inability to trade at the current price forces price to change.
Market orders apply pressure. Limit orders offer resistance. Price only moves if the other side cannot absorb that pressure. Price movement depends on which side exhausts first.
It's important to note that market orders do not automatically move price and limit orders do not automatically stop price. They interact.
It's just: 👉 Is there anyone left on the other side?
Price in the Context of Orders
Market orders are more likely to MOVE price. Why? Because you are accepting whatever is offered at that immediate time. But because your order might not be executed immediately, it creates that imbalance in buyers or sellers. It's more desperate and "aggressive". There is greater "intent".
Limit orders are more likely to absorb price. Why? Because by the time price has gotten there, buyers/sellers are already waiting there. Every seller who shows up gets matched with a buyer immediately, and vice versa. Every order is matched automatically and immediately, so there is no imbalance, and so price stays where it is.
But because often time, banks are the ones doing those huge limit orders, all of a sudden, at a certain price range, you have this drastic shift and imbalance of buyers and sellers.
Why? Because these random small scale trades get price to the banks' limit orders and then boom. All of a sudden there are 50,000 buy orders at this price from the bank compared to 2,000 tiny sell orders at this price. So there's loads more buyers than sellers relative to this price point and price skyrockets.
"Absorb price" just means sellers keep selling, but price doesn't fall, because buyers are already waiting there.
It is all relative to price!! "More buyers than sellers → price goes up" is a shortcut explanation but it hides the real mechanism. The real mechanism is price goes up when there are no sellers left at the current price. Not "more buyers". Instead "no sellers here anymore".
So an order by itself does NOT move price or do anything. It is only when two orders are matched at the same price that an order is executed. But even then, just because an order has been executed or a trade has taken place, that still doesn't have any inherent impact on price. The only thing that inherently affects price is the imbalance of buyers or sellers at any given price.
Orders express intent. Trades happen when intent meets agreement. Price moves only when agreement at the current price becomes impossible.
What Are "Unfulfilled" or "Unfinished" Orders?
Imagine McDonald's gets 1,000 burger orders, but the kitchen can only make 600. What happens? 600 orders are fulfilled and 400 orders are still waiting.
Those 400 are unfulfilled orders.
In trading, it's the same thing. A bank wants to buy a LOT. But only part of their order gets filled. The rest is still waiting at that price.
Those waiting orders: 👉 Stay there 👉 Matter later 👉 Cause price to react again
So now the real question becomes:
If waiting orders "do nothing", how can they stop price later?
Liquidity
Liquidity = "Are there people available to trade with at this price?"
That's it. Nothing more.
Example (real life):
- You want to sell your bike for £100
- If 10 people are willing to buy at £100 → high liquidity
- If 0 people are willing to buy at £100 → no liquidity
Liquidity is just how easy it is to find someone to trade with at a given price.
In market terms (still plain English):
At price 1.1950:
- If there are sellers willing to sell at 1.1950 → liquidity exists
- If there are no sellers left at 1.1950 → liquidity is gone
That's all liquidity means.
When liquidity is gone, price must change. Price moves to find liquidity.
Volume
Volume = "How many trades happened"
That's it.
Volume does NOT mean:
- Who won
- Where price should go
- That price must move
It only means how much buying and selling took place.
The Trade-Off: Market Orders vs Limit Orders
Market Order (Expanded)
When you place a market order, you are choosing:
- Execution certainty
- Over price certainty
You are saying:
"Fill this trade NOW. The price doesn't matter."
If the market is moving fast:
- You will get filled
- But possibly at a worse price than you expected (slippage)
That is the trade-off you accepted.
Limit Order (Expanded)
When you place a limit order, you are choosing:
- Price certainty
- Over execution certainty
You are saying:
"Fill this trade only at THIS price."
If the market says "no":
- You don't get filled
- You miss the exit
- Price can reverse
- You can give profits back
That is the trade-off you accepted.
"What if there are no buyers or sellers willing to agree at that price? Then the limit order just hangs there?"
YES. EXACTLY.
And that is the whole point. A trade only happens if someone on the other side agrees.
A limit order is a preference, not a guarantee.
The Ultimate Question Between Order Types
What happens when the price you chose is reached?
Do you demand to be executed immediately, or are you willing to wait?
Would you rather:
- Always exit at your exact price but sometimes not exit at all?
- Or always exit but sometimes at a worse price?
That's the fundamental trade-off.
Stops choose certainty of exit. Targets choose certainty of price.
You must choose which you value more in each situation.
Order type is determined by urgency.
Why Limit Orders Don't Always Fill
"What if price touches a limit order, doesn't fill it, then reverses and never comes back?"
This can and does happen. There are three common reasons:
1. Thin Liquidity
Price briefly traded at that level with very few participants. Not enough trades happened to reach your order in the queue.
2. Large Competing Orders
Other traders had their limit orders at that price before you. They were ahead of you in the queue (Price-Time Priority), so they got filled first. You didn't.
3. Fast Rejection
Buyers and sellers met briefly at that price, then agreement broke instantly. Price left before your order could be matched.
On the chart, this shows up as:
- A wick
- A spike
- A rejection
Your order simply wasn't chosen.
This is Why Wicks Exist
Think of the market not as a single "price," but as a physical queue of people waiting to trade.
The Queue System (Price-Time Priority)
When you place a limit order, you're not just setting a price - you're taking a spot in a queue.
Price Rule: All orders at $10.00 are filled before anyone at $10.01.
Time Rule: If 500 people have limit orders at $10.00, whoever placed their order first gets filled first.
The Scenario: Imagine there are 1,000 buy orders sitting at $10.00. You're at the back of the queue with your order. If sellers come in and only sell 500 shares total, the first 500 people in line get filled. Then price bounces back up to $10.05.
Result: The chart shows price "touched" $10.00. But because the selling ran out before reaching your spot in the queue, you never got filled.
What a Wick Actually Means
A wick means:
Price traded there, but agreement was brief and selective.
Not everyone who wanted to trade there got to trade there.
When the chart shows price touching your level, it only means:
- Some trades happened at that price
It does NOT mean:
- All orders there were filled
- Your order was chosen
- The queue was emptied
A wick is:
- Price reached a level
- Some trades happened
- The queue was NOT emptied
- Agreement collapsed
- Price left
So some people traded. Some didn't. Some were left behind.
Will an Order Ever Be Filled?
It depends on your Time in Force setting:
- Day Order: If price doesn't reach your spot in the queue by market close, the order is deleted. It will never be filled.
- GTC (Good 'Til Canceled): The order stays in the queue for days or weeks. If price comes back to that level and it's finally your turn, it will fill.
Why Institutions Scale Out
The fact that limit orders aren't always filled is also why institutions rarely use:
- One single take-profit
- One single exit price
Instead, they:
- Exit in pieces
- At multiple prices
- Over time
Why? Because they know:
Execution is never guaranteed at one price.
Next: Market Nature
Now that you know how the "engine" works, let's look at the "personality" of the crowd that drives it.