What Is a Market, Anyway?
A market is simply a place where two parties agree on a price. In traditional finance, that place is usually a regulated exchange like the NYSE or NASDAQ. These exchanges set rules, maintain transparency, and ensure that every trade settles correctly.
The Order Book
Every exchange runs an order book — a live list of every buy and sell order waiting to be filled. When you place a market order to buy, you're matching against the lowest sell order in the book. When you place a market order to sell, you're matching against the highest buy order.
The gap between the highest bid (best buy) and lowest ask (best sell) is called the spread. Narrow spreads mean a liquid market; wide spreads mean it's harder to trade without moving the price.
Exchanges vs. Dark Pools
Most retail trading happens on public exchanges where prices are visible to everyone. But large institutions also use dark pools — private trading venues where large orders can be executed with less market impact. Dark pools account for roughly 35-40% of US equity volume. You won't see those trades on your chart in real time.
Key Takeaways
- Exchanges match buyers and sellers through a transparent order book
- The bid-ask spread is the cost of instant execution — tighter = better for you
- Not all trading happens on public exchanges; dark pools hide large institutional flows
- Understanding market structure makes every other trading concept sharper
Next Lesson Preview
In Order Types & Execution, you'll learn why a market order isn't always the smartest choice — and how limit orders give you control over the price you pay.