What a Market Is

A market is a place where people who want to buy something meet with people who want to sell it. Imagine a farmer’s market. A farmer shows up with fruit, a shopper shows up with money, they both agree on a price, and a sale is made. That’s the same idea behind the financial markets you’ll learn to trade.

The Exchange

An exchange is an online financial marketplace where buyers and sellers meet to trade. Just like a farmer’s market, it’s a meeting place, not a store. Exchanges connect people from around the world, and millions of trades happen on them every day.

A trade only happens when a buyer and seller agree on a price. The bid is the highest price any buyer is currently willing to pay. The ask is the lowest price any seller is currently willing to accept. The spread is the gap between the ask and the bid.

Agreeing on a Price

Picture the farmer’s market on a busy morning. Every stall has apples, and no farmer will part with a bag for less than $3.00. The shoppers milling between the stalls want their own bargain, and the most any of them will offer is $2.50. The ask is $3.00, the bid is $2.50, and the spread is the 50-cent gap between them that nobody has crossed yet.

Stand there for a minute and watch how the gap gets crossed:

• A shopper in a hurry gives in and pays a farmer’s $3.00 ask.
• A farmer trying to sell the last of their crates comes down in price and accepts a shopper’s $2.50 bid.
• A farmer and a shopper meet in the middle and settle on $2.75.

Every sale is a buyer and seller agreeing on a price, and that sale becomes the latest price of apples. A shopper could hold out at $2.50 all morning and never get a bag. It doesn’t matter. Deals keep closing all around the market, and the price keeps coming from whoever traded last. The financial markets work the same way. Every trade gets recorded, and the latest trade becomes the price you see on a screen.

Homework

Your homework is to watch a live market and record its bid, ask, and spread.

1. Open Apple’s stock quote on Yahoo Finance (opens in a new tab). Yes, apples again.
2. During regular market hours (9:30 a.m. to 4:00 p.m. Eastern, Monday through Friday), watch the big price above the chart for a minute or two. Each time it changes, a new trade has been reported. Somewhere, a buyer and seller agreed on a price.
3. Find the bid and ask in the table below the chart. Each one shows a price followed by an x and a number of shares. You only need the prices. These quotes are snapshots rather than a perfectly live feed, so they may sit still.
4. Record the bid and ask. Subtract the bid from the ask to calculate the spread.
5. Write a short journal entry that includes:
   • The bid
   • The ask
   • The spread you calculated
   • One or two sentences describing what the large price did while you watched. Note how often it changed, how far it moved, and where it ended.
6. In your journal, create a folder for this module named The Markets. Inside it, create a folder for this lesson named What a Market Is. Save the entry there.

Validation checklist

Before an observation counts, make sure:

• The page was watched during regular market hours.
• The bid and ask are both recorded.
• The spread was calculated by subtracting the bid from the ask.
• The entry describes what the large price did during the observation.
• The completed entry is saved in this lesson’s folder in your journal.

Mastery targets

One observation means completing the homework and saving it as its own journal entry. Complete no more than one observation per day so that each one records a different day’s market activity.

You need one star to move on. The remaining observations can be completed while you continue through the lessons ahead.

Only observations that pass the validation checklist count toward a star.