Module 2: The Markets · Lesson 9/40
8 min 40 XP
When you press BUY, your order travels: you → broker → liquidity venue → matched against a seller. Stocks are matched on a central exchange (one official order book, like the NYSE). Forex and most CFDs are OTC, over the counter: no central building, just a worldwide network of banks and liquidity providers quoting prices to each other. Same auction logic, different plumbing.
At any moment there are two prices. The bid, the highest price buyers are willing to pay. The ask, the lowest price sellers will accept. You buy *at the ask* and sell *at the bid*. The gap between them is the spread: the toll you pay to enter, and the market maker's compensation for always being ready to trade with you.
Your real entry cost
Cost per trade = Spread + Commission (+ Slippage)
On EUR/USD a typical spread is ~0.6–1.5 pips. Trade 20 times a day and the toll quietly becomes the house edge against you, this is why overtrading kills accounts.
Liquidity = how much can be traded right now without moving the price. EUR/USD at London open is an ocean; an exotic pair at 3 a.m. is a puddle. In thin liquidity your order eats through the book and fills at worse prices, that difference between the price you clicked and the price you got is slippage. It spikes around news releases, when everyone runs the same direction at once.
Common beginner mistake
Judging a trade by the chart alone and ignoring costs. A scalping strategy that "works" on a clean chart can be unprofitable purely because of spread. Always know your cost per trade before you trade.