How does a market work?
Understand buyers, sellers, and the gap between their prices.
The idea
A market brings together people who want to buy and people who want to sell.
The bid is a price a buyer is offering. The ask is a price a seller is asking for. The difference between the best bid and the best ask is called the spread.
A small example
Imagine a simplified market with enough quantity at each price:
| Action | Available price |
|---|---|
| Sell immediately to a buyer | 99 |
| Buy immediately from a seller | 101 |
The spread is 2. The midpoint, halfway between those prices, is 100.
The midpoint describes the market, but it is not an offer you can necessarily trade at.
Try it
In this example, you buy one unit at 101 and immediately sell it at 99.
What is the difference, before any fees?
Check your answer
You receive 2 less than you paid.
A trading test must distinguish the price on a chart from the price an order could receive. Keep that distinction in mind when you reach the lessons on testing and costs.