The market ecosystem
The financial market is an interconnected system where banks, funds, governments, brokers, prop firms, exchanges, and individual traders interact. Each player has a role: banks/liquidity providers quote prices, exchanges run centralized order books (stocks, futures), OTC venues connect bilateral flows (FX spot), brokers route client orders, and prop firms enforce risk rules and consistency. You never “buy from the market” in the abstract your order travels through real infrastructure and meets a counterparty. Trust (regulation, clearing, custody) and technology (routing, latency, price aggregation) are what make millions of trades possible every day.
How price is formed
Price emerges from supply and demand meeting. In order-book markets (equities/futures), you see quantities at each level; in OTC (FX), multiple banks stream quotes and an aggregator selects the best Bid and Ask. Their difference the spread plus commissions and swaps is your baseline cost. Liquidity is how much size can trade without moving price; depth buffers shocks. When liquidity thins or aggressive flow hits, price “jumps” levels and slippage appears. The same asset behaves differently by time of day (London/NY opens) or events (macro data), which rearrange orders and expectations.
The trade lifecycle
It starts with a decision from your plan: technical/fundamental signal or both. When you submit the order, the broker checks margins and routes it to an exchange if centralized, or to LPs/ECNs if OTC. There, matching occurs: if price and size find a counterparty, you get a full or partial fill. You receive an execution report (price, size, fees, any slippage). Then comes settlement/clearing; cash equities are often T+2, standardized derivatives are near-instant at the margin level. Knowing this cycle explains partial fills, execution delays, and why fill price can differ from what you saw on screen.
Orders: using the right tool
A Market order prioritizes immediacy and accepts the best available price (fast, but sensitive to slippage in volatility). A Limit order controls your maximum/minimum price (great for cost control, but may not fill). Stops trigger entries/exits at predefined levels (common for Stop Loss and breakouts). OCO links target and stop so one cancels the other, automating management. In prop firm evaluations, understanding how each order type behaves under volatility and liquidity is crucial to avoid rule breaches due to unexpected slippage or overtrading.
Brokers, market makers, and liquidity
Your broker is the operational interface: custody (case-dependent), data, routing, and fees. A market maker continuously quotes two-way prices, taking temporary risk to provide continuity, earning from the spread and hedging. LPs (banks/institutions) feed OTC pools; an aggregator selects the best quote. In ECNs, participants cross orders directly and more cost shifts into commissions. For traders, this means real differences: tighter spreads in liquid hours, possible widening during news, and better fills when routing and liquidity quality are superior.
Why prices move
Prices move when expectations and flows change. A hotter-than-expected inflation print can reshape rate paths, strengthen/weakening currencies, and drive sector rotations. Portfolio rebalances, hedging, arbitrage, and position unwinds create waves of orders that sweep through levels. With less relative liquidity (off-hours, exotic assets) the same flow has larger impact. Microstructure matters too: clustered stops near obvious levels, liquidity voids, and false breakouts cause sharp moves and snap-backs. Knowing when and where meaningful flow is likely to appear is as important as any chart pattern.
What “doing trading” really means
“Buy low, sell high” is catchy but incomplete. Trading is defining a measurable edge, codifying it into a plan with entry/exit and risk rules, and executing with enough discipline for statistics to play out. It means accepting costs (spread, commissions, swaps), managing exposure (leverage and position sizing), and enduring losing streaks without breaking rules. In a prop firm, it also means respecting daily loss and drawdown limits, prioritizing consistency over showy returns, and maintaining a trading journal to iterate improvements.