Exchange vs OTC
- Exchange: central order book (common in stocks).
- OTC: quotes from liquidity providers via broker (common in forex).
- Key difference: transparency & routing.
Trading costs
- Total cost = spread + commission + slippage.
- If holding overnight: add swap/financing.
- Costs decide if your edge survives.
Why it matters
- Same strategy ≠ same results across sessions.
- Bad execution can turn winners into losers.
- Measure: spread + slippage like a pro.
Liquidity (why spreads widen)
More liquidity usually means tighter spreads and smoother fills. Less liquidity = more “friction”.
Spread
Your entry cost. Wider spread = harder to profit.
Slippage
Fill worse than expected. More common in volatility.
When it worsens
Quiet hours, transitions, major news windows.
Sessions (visual)
Trading behavior changes by time-of-day because participation changes.
Beginner rules (fast)
- Choose one session to learn (consistency).
- Avoid trading just before major news.
- If spreads widen, your setup quality drops.
- When volatility rises, size down.
Consistency
Lower surprises
Better learning curve
Orders & execution (simple + visual)
Order choice affects costs, fill quality, and risk control.
Market order
- Executes immediately.
- Best for urgent exits.
- Higher slippage risk in spikes.
Limit order
- Executes at your price or better.
- Best for cost control.
- Risk: may not fill.
| Tool | What it controls | When to use | Beginner warning |
|---|---|---|---|
| Stop-loss | Maximum planned risk | Every trade | Can slip during spikes/gaps |
| Position size | How much you lose if wrong | Before entry | Too big = emotional trading |
| Session choice | Volatility + spreads | Strategy setup | Wrong session = inconsistent results |
FAQ
Why do spreads jump sometimes?
Liquidity drops or volatility rises (session changes, major news, thin markets). Providers quote wider prices to manage risk.
Is slippage “manipulation”?
Usually it’s market conditions. Reduce it by trading liquid sessions, using smaller size, and avoiding news spikes early.
What should I do next?
Go to Risk Management for Beginner Traders, then Trading Psychology for consistency.