Lesson 2 of 14 · 2 min
What an exchange is
Where buyers and sellers meet, how orders get matched, and why "the price" is just the last trade.
An exchange is a marketplace with one job: match people who want to buy with people who want to sell. For the futures in this library, that exchange is the CME, and it runs entirely on computers.
Two kinds of people in every market
- Buyers post bids: "I'll buy at this price or lower."
- Sellers post asks (also called offers): "I'll sell at this price or higher."
These waiting orders sit in the order book. The highest bid and the lowest ask are always a little apart. That gap is the spread.
How a trade happens
A trade only happens when someone stops waiting and crosses the spread:
- A buyer sends a market order and takes the lowest ask, or
- A seller sends a market order and hits the highest bid.
The exchange matches the two orders, and a trade prints.
So what is "the price"?
The price on your chart is simply the last trade. Nothing more. It isn't a fair value, and nobody "sets" it. It's where the most recent buyer and seller agreed.
Why this matters
Every tool in this library, from candles and volume to orderflow, is a way of looking at those matched trades. If you understand the order book, everything else is just a different view of it.
Quick recap
- Bids wait to buy and asks wait to sell. The gap between them is the spread.
- A trade happens when someone crosses the spread with a market order.
- The price is the last trade.
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