I need to learn the following to be able to succeed as a retail trader : the order book, best bid and offer (BBO), liquidity, market makers, and price discovery—the mechanics of how markets actually function beneath the candles on your chart.

Welcome! I'm thrilled to help you peer behind the curtain of the charts. Before we construct our official learning path and start mapping out the order book, I'd love to know a bit more about your current trading background so I can tailor our pace perfectly.

Could you tell me a little about your current experience level with trading, and what specific types of markets (like crypto, stocks, or futures) you are most interested in?

I have some chart experience, looking at stocks.

Beneath the Candles

It is great to have you here! Since you already have experience looking at stock charts, you are probably used to seeing green and red candles moving up and down. But those candles are actually just the historical footprints of a highly competitive, real-time auction happening under the hood.

To truly understand why prices move, we have to look at the engine room of the stock market: the (often just called the LOB).

Think of the stock market like a massive, ultra-fast digital auction. At any given second, there are two types of traders participating: those who are willing to wait for the perfect price, and those who want to buy or sell right this very instant. To make this happen, the exchange uses two primary order types to build the book:

Order Type	What It Means	Role in the Book
Limit Order	"I want to buy at $10.00, but not a penny more."	Adds to the book (Provides liquidity)
Market Order	"I need to sell 100 shares right now at whatever price is available!"	Takes from the book (Consumes liquidity)

When traders submit limit orders, they don't get filled right away. Instead, their orders sit in the Limit Order Book, stacked on top of each other, waiting for someone to come along and match them with a market order.

Would you like to explore how these sitting orders actually look inside the book, or should we jump straight into how they determine the current stock price?

Show me what the inside of an order book looks like

Let's crack open the hood and look at how these sitting limit orders are organized. It's actually a beautifully simple, symmetrical system divided right down the middle.

A corrected, static 2D representation of a Limit Order Book with ascending sell asks on the top-right and descending buy bids on the bottom-left.

I've started pulling together a visual mapping of the LOB to help make this concrete. In every Limit Order Book, you have two opposing sides battling for the next trade:

The Bid Side (Buyers): These are the green levels. Buyers are trying to get the absolute cheapest price, so they sit below the current trading price. The is the most aggressive buyer willing to pay the most money.
The Ask Side (Sellers): These are the red levels (sometimes called 'offers'). Sellers want to maximize their payout, so they sit above the current trading price. The is the most aggressive seller willing to accept the least money.

Every single price level displays the total Size (or volume)—which is just the total number of shares waiting to be traded at that specific price.

Notice how there is a natural gap between the highest price someone wants to buy for, and the lowest price someone wants to sell for? That gap is the magic key to understanding market prices.

Ready to see how we define this gap, or would you like to ask a question about the layout first?

Continue to the Best Bid and Offer (BBO) and the spread

The BBO and the Spread

Now that you know how buyers and sellers line up, we can look at the two most important prices in any market: the Best Bid and the Best Offer (which traders refer to collectively as the ). The Best Bid is the highest price currently offered by a buyer, and the Best Offer (or Best Ask) is the lowest price currently requested by a seller. If you look at a stock app and see a quote like "Apple is trading at $185.00," that number is usually just the last price where a buyer and seller successfully shook hands. But if you want to trade right now, you have to look at the BBO.

Because buyers want to buy low and sellers want to sell high, the Best Bid is always lower than the Best Offer. The gap between them is called the . Let's look at a quick, concrete example. Imagine you want to buy shares of a stock, and the order book currently looks like this:

Category	Level	Price	Size (Shares)
Sellers (Asks)	Ask 2	$50.05	1,000
	Best Offer (Ask 1)	$50.02	500
Buyers (Bids)	Best Bid (Bid 1)	$50.00	800
	Bid 2	$49.97	1,200

In this scenario, the BBO is $50.00 by $50.02. To find the bid-ask spread, we simply subtract the Best Bid from the Best Offer:

\text{Spread} = \text{Best Offer} - \text{Best Bid}

\text{Spread} = \$50.02 - \$50.00 = \$0.02

This two-cent gap is the friction of the market. If you are highly impatient and want to buy right now using a market order, you must pay the Best Offer of $50.02. If you want to sell right now using a market order, you must accept the Best Bid of $50.00. Now, how wide or narrow this spread is tells us something incredibly important about the stock's overall health: its liquidity.

Can a retail trader buy inside the spread?

Yes, absolutely! As a retail trader, you are not forced to just sit back and accept the Best Bid or Best Offer that others are quoting. You can actively step inside that gap by placing a limit order of your own.

When you do this, it is called placing an order inside the spread.

Let's look at how this plays out step-by-step using our previous example where the Best Bid is $50.00 and the Best Offer is $50.02.

If you want to buy but do not want to pay the impatient price of $50.02, you can submit a buy limit order at $50.01. Because your buy order is higher than the existing Best Bid of $50.00, the exchange's matching engine instantly promotes you to the very front of the buying line.

You have just accomplished two things:

You became the new Best Bid inside the book.
You narrowed the from two cents down to just one cent ($50.01 to $50.02).

If an impatient seller comes along and flings a market order into the exchange, they will now match with your buy order at $50.01. You get a cheaper fill than the market sell price, and they get to sell immediately. It is a win-win.

This ability to step in and out of the spread brings us to the core engine of how markets breathe: liquidity.

Should we explore what liquidity actually means in the context of these order queues, or would you like to run through another limit order placement first?