How Are Orders Priced?
How are orders priced? This is a critical question for traders who want to understand what determines the value at which their trades execute. Prices don’t appear out of thin air—they reflect real-time market supply and demand, and they shift constantly based on new data, sentiment, and trading activity.
Who Sets the Price?
Price discovery happens when buyers and sellers interact. In most markets, prices update live through an electronic order book. Traders place buy (bid) and sell (ask) orders, and when both sides agree on a price, the system executes the trade.
Exchanges and liquidity providers play a key role. They quote the prices based on order flow, news, volume, and volatility. Learn how orders are executed here.
Bid and Ask Prices Explained
The bid price represents what buyers are willing to pay, while the ask (or offer) price reflects what sellers want to receive. The difference between these two levels is known as the spread.
Tighter spreads usually occur in highly liquid markets, while wider spreads often appear during volatility or when liquidity drops.
How Pricing Works for Market Orders
If you place a market order, your broker matches it with the best available price. You “cross the spread,” meaning buyers accept the current ask, or sellers accept the bid. This makes execution quick but may involve small costs from the spread.
How Are Prices Determined for Pending Orders?
With pending orders (e.g., limit or stop), you set the price. A limit order waits until the market reaches your chosen level. A stop order activates once the price hits your trigger, then becomes a market order.
This method gives you more control over entry or exit levels but may result in no execution if the price never reaches your trigger.
What Influences Order Pricing?
- 📈 Liquidity: More buyers and sellers lead to tighter pricing and faster fills
- 📊 News flow: Economic releases and headlines move prices sharply
- 💹 Volatility: When markets swing, spreads may widen and quotes update faster
- 🔧 Broker type: ECN and STP brokers pass on market prices, while market makers may quote their own
Price Transparency and Regulation
Regulated brokers must display fair pricing and disclose how they calculate spreads and markups. You can usually find this in their pricing policy or execution documents. This transparency helps you understand exactly how your trades get priced and what costs apply.
Quick Recap
- ✅ Prices form based on bid/ask quotes from buyers and sellers
- ✅ Market orders fill at the best current prices — you cross the spread
- ✅ Pending orders wait for price levels you define
- ✅ Liquidity, volatility, and broker type influence how orders are priced
Interactive Tip 💡
Compare how prices change during major news events versus calm trading sessions. Watch the spread on your platform to see how volatility affects what you pay or receive when trading.