How Financial Markets Work
Before you place your first trade you need to understand the arena you're stepping into — how prices are set, when markets are open, and who you're trading against.
Supply and Demand Sets Prices
Every market — stocks, forex, crypto — is driven by one simple mechanism: supply and demand. When more people want to buy something than sell it, the price goes up. When sellers outnumber buyers, the price drops.
Key Concept
Price is simply the point where a buyer and a seller agree. Nothing more. Every tick on a chart represents an actual transaction between two parties.
Order Books, Bid/Ask & Spread
Behind every price you see is an order book — a live list of all pending buy and sell orders at different prices.
- •Bid — the highest price a buyer is willing to pay right now.
- •Ask (Offer) — the lowest price a seller is willing to accept.
- •Spread — the gap between the bid and ask. A tight spread means a liquid market; a wide spread means less liquidity.
Example
If Apple (AAPL) has a bid of $189.50 and an ask of $189.52, the spread is $0.02. You'd buy at $189.52 and sell at $189.50 — that two-cent gap is profit for the market maker.
Market Hours
Different markets operate on different schedules:
London Stock Exchange (LSE)
8:00 AM – 4:30 PM GMT
New York Stock Exchange (NYSE)
9:30 AM – 4:00 PM ET
Forex
24 hours, 5 days a week
Crypto
24 hours, 7 days a week
What Makes Prices Move
- •Earnings reports — companies beating or missing profit expectations.
- •News & events — geopolitics, regulations, mergers, scandals.
- •Market sentiment — collective mood of traders (fear vs greed).
- •Economic data — interest rates, inflation, employment figures.
Who Participates
- •Retail traders — individuals like you and me trading from a phone or laptop.
- •Institutional investors — hedge funds, pension funds, banks. They move the big money.
- •Market makers — firms that provide liquidity by always being ready to buy and sell. They profit from the spread.
Reality Check
As a retail trader you are the smallest fish in the pond. Institutions have more data, faster execution, and deeper pockets. Your edge is discipline, patience, and the ability to sit out when conditions are bad.
Risk Warning
Trading financial instruments carries a high level of risk and may not be suitable for all investors. You could lose some or all of your invested capital. Never trade with money you cannot afford to lose. This content is for educational purposes only and does not constitute financial advice.