Price Discovery
Table of contents
Price discovery is the process by which the market determines the fair value of an asset based on supply, demand, and available information.
How Price Discovery Works
In crypto and traditional markets, price discovery happens when buyers and sellers interact through bids and asks. Factors like trading volume, news, sentiment, and liquidity influence the price. The constant adjustment of these forces helps identify the most accurate market price at any given moment.
Why Price Discovery Is Important
Accurate price discovery ensures transparency and fairness in trading. In volatile markets like crypto, it’s crucial for identifying entry and exit points, assessing value, and enabling efficient market behavior. Strong price discovery also attracts institutional investors by reducing uncertainty.