The market price of something is the current price at which that asset can be bought or sold. There are many factors that impact the market price of an asset and it is re-evaluated regularly to reflect this. Generally, the market price is determined by the balance between the supply and demand of the asset. In other words, the market price can be impacted by how the buyer and seller interact over that particular asset.
When trading, regardless of whether you are trading stocks or currency, it is important to understand what the market price refers to and the factors that may cause it to change.
Understanding Market Price When it Comes to Trading
There are two sides to every trade. This means that when you are forex trading, for example, you buy one currency at the same time as selling another. With other trades, the trader might buy stock, which means that the dealer is selling the stock. When the market price is quoted, this includes a bid price and an ask price. The bid is the price at which the dealer will buy, whereas the ask price is the price at which the dealer will sell. The bid is always lower than the ask price and the difference between the two values is known as the spread.
A sale takes place when the buyer is prepared to pay the ask price or when the seller is prepared to accept the bid price. In some cases, the buyer and seller may change their orders and meet in the middle. For a very liquid stock, such as trading with major currencies, the spread is very small because there are many people available to buy or sell those currencies. However, with less liquid stock where there are fewer people willing to buy or sell, such as exotic currencies, the spread is much wider. This acts as some sort of compensation to the market-maker for carrying the stock which he may need to hold on to for some time and he accepts the risk if the market moves in the wrong direction.
