Price Discovery

Markets bring together many participants with different information, opinions and needs. As they place buy and sell orders, prices move to the level at which supply and demand balance. This price reflects the market's combined assessment of the asset's value at that moment.

For example, when a company releases unexpectedly strong results, buyers rush in and sellers raise their asking prices. Within minutes, the share price adjusts upwards to reflect the new information.

Efficient price discovery requires transparent markets, active trading, many participants and access to information. Futures markets often play a key role in price discovery for commodities, since many traders express their views there.

Price discovery can be weaker in illiquid markets, private markets and markets with limited transparency, where prices may be set less often and may not reflect all available information. Good price discovery benefits the wider economy by helping capital flow to its most valued uses.