Regardless of whether we are navigating through the structured environments of exchange traded platforms and ECNs with their comprehensive order books, or engaging with the traditional OTC markets, the principles of market price quotation remain consistent across the board.
These principles include a last price, a bid price, an ask price, and at times a mid price. Let's develop an understanding of these different pieces of information.
The last price captures the most recent transaction price of a financial instrument. It serves as a real time barometer of the market's valuation of the instrument, reflecting the latest agreement between buyers and sellers.
A constantly changing last price is indicative of a highly liquid market suggesting active trading and a robust trading environment. Furthermore, the last price of the trading session contributes to the historical price data, which often forms the basis of technical analysis and historical trend assessment.
Bid and ask prices. These prices are the pillars of a two-sided market where participants can engage in both buying and selling activities. The bid price represents the maximum level buyers are currently willing to pay, denoting the demand side of the equation. If one wishes to sell immediately, the transaction can typically be executed at the current bid price, subject to the limitation of the bid size available. Conversely, the ask or offer price represents the minimum price sellers are willing to accept. Reflecting the supply side, an immediate purchase can generally be made at the current ask price, again, limited by the available ask size. The mid-market price, also referred to as the mid price, is a value derived from the midpoint between the bid and ask prices.
It serves as a neutral reference point and is commonly utilized for valuation comparisons and theoretical price assessments.
