What Is a Financial Market?

A financial market is a place — physical or electronic — where buyers and sellers trade assets such as stocks, bonds, currencies, or commodities.

The Basic Mechanics

1. A buyer wants to buy a stock at a certain price (a bid).
2. A seller wants to sell a stock at a certain price (an ask).
3. An exchange matches buyers and sellers. When a bid meets an ask, a trade happens.

The Order Book

The order book is the exchange's record of all buy and sell orders, organized by price.

Bids (highest first)        Asks (lowest first)
-------                     ------
100.03 × 50 shares          100.05 × 30 shares
100.02 × 100 shares         100.06 × 200 shares
100.01 × 75 shares          100.07 × 150 shares

• Bid: the highest price a buyer is willing to pay.
• Ask (or Offer): the lowest price a seller is willing to accept.
• Spread: the difference between the best bid and best ask.
• Match: when a bid price meets or exceeds an ask price, the trade executes.

Key Terms

• Price: how much money changes hands per share
• Quantity: how many shares are being bought or sold
• Liquidity: how easily you can buy or sell without moving the price
• Exchange: the platform that matches orders (e.g., NYSE, NASDAQ)
• Broker: the intermediary that sends orders to the exchange