Before you trade anything, you need to understand the machinery behind the price on your screen. Prices are not random. They are the result of millions of people making decisions simultaneously. This lesson explains how that works.
Supply and Demand Sets Prices
Every price you see is the result of supply and demand. If more people want to buy something than sell it, the price goes up. If more people want to sell than buy, the price goes down. That is the entire mechanism. Everything else — news, earnings, economic data — just shifts the balance of supply and demand.
Key Concept
Price is simply the point where a buyer and seller agree. If no one is willing to sell at £10, the price has to go higher until someone is. If no one wants to buy at £10, the price has to drop until someone does. This negotiation happens millions of times per second on major exchanges.
Order Books, Bid/Ask, and Spread
Behind every market is an order book — a list of all the buy orders and sell orders waiting to be filled.
- Bid — the highest price someone is willing to buy at right now
- Ask (or Offer) — the lowest price someone is willing to sell at right now
- Spread — the gap between the bid and ask price
Example
Vodafone shares: Bid = £1.0450, Ask = £1.0460. The spread is £0.001. If you buy instantly, you pay £1.0460. If you sell instantly, you get £1.0450. The spread is effectively the cost of immediacy — and it is how market makers earn their living.
Market Hours
Different markets trade at different times. All times below are in UK time (GMT/BST):
| Market | Hours (UK) | Days |
|---|---|---|
| London Stock Exchange (LSE) | 8:00am - 4:30pm | Mon-Fri |
| New York (NYSE/NASDAQ) | 2:30pm - 9:00pm | Mon-Fri |
| Forex | 24 hours | Mon-Fri (24/5) |
| Crypto | 24 hours | Every day (24/7) |
What Makes Prices Move?
Prices move because new information changes the balance of buyers and sellers. The main drivers:
- Earnings reports — companies beating or missing profit expectations
- Economic data — inflation, employment, GDP, interest rate decisions
- News events — wars, elections, pandemics, regulation changes
- Market sentiment — fear and greed, herd behaviour, social media
- Technical levels — when key prices are hit, algorithmic orders trigger
Market Participants and Their Roles
Markets only function because different participants have different goals. Central banks set interest rates. Pension funds buy steadily over decades. Hedge funds try to exploit short-term inefficiencies. Retail traders speculate on direction. Market makers provide liquidity. Each plays a role in the ecosystem, and understanding who you are trading against matters.
Exchanges vs OTC
Exchanges are centralised marketplaces — the London Stock Exchange, NASDAQ, Coinbase. All orders go through one place, so pricing is transparent.
Over-the-counter (OTC) trading happens directly between two parties, without an exchange. Forex is largely OTC — your broker is often your counterparty. This means pricing can vary between brokers.
Warning
Understanding market structure is not optional — it directly affects your trading costs, execution speed, and the reliability of prices you see. Trading without understanding this is like driving without knowing what the pedals do.
Risk Disclaimer: Trading financial markets involves significant risk of loss. The content on this page is for educational purposes only and does not constitute financial advice. Past performance is not indicative of future results. You should not trade with money you cannot afford to lose. 70-80% of retail investor accounts lose money when trading CFDs and spread bets. Consider whether you understand how these products work and whether you can afford the high risk of losing your money.