Price Discovery
Market Microstructure glossary · Adverse Selection & Information Asymmetry
Definition
The process by which trading reveals information about fundamental values.
Price Discovery in plain English
Price discovery is how the market figures out what something is really worth. Nobody knows the 'true' value of a stock for certain, but as tons of buyers and sellers place orders and trade, the price they settle on absorbs everyone's information and opinions — good earnings, bad news, rumors — and gradually reveals a shared estimate of value. It's like an auction where each bid tells you a little more about what the crowd thinks a painting is worth, until the final price reflects the whole room's judgment. That constant back-and-forth is the market 'discovering' the price.
Practice Price Discovery
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