Could someone more in the know than I assist me with working out what/who decides the price of a particular instrument? For example, if the US has bad news, and this devalues USOIL, who decides or what decides how much value is wiped off? I guess it’s algorithms, world banks etc, but I wondered if there was anything more specific. I ask purely because I’m interested.
Most prices in the financial sector are not set centrally by some regulatory authority or financial exchange. they are reached through supply and demand.
But prices are always quoted in twos - bid and ask. So if most brokers are willing to pay $101 to buy a company share, that gives you the ask price. If most brokers are willing to sell the same share at $100 that gives you the bid price. The bid-ask quote is $100-101. The bid price is usually the one used to draw price charts.
The mid-price is sometimes referred to e.g. in the media, and its simply the average between the bid and ask price: in this case $101.50.
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Thanks for responding! Very interesting.
With regards to the prices quoted in twos - wouldn’t this require some collaboration between brokers to settle on a bid and ask?
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In a world, “The Market”! I see you already have the long detail answer!
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Not at all, its like a voting system. Everyone is watching everyone else’s price quotes from the orders they set in the market in question. No need for centralising quotes and coordinating to make “official” prices.
Same as bread in the local shops. Of course as consumers we can only see the ask prices but each shop is free to set their own price. So I can see all the prices for bread locally and I can go and buy it where I wish.
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That’s a great analogy! Thank you.
I’ve been wondering whether if I changed my question from a “What/Who” to a “How”, whether it would make any difference. I’m just very interested to learn how the price for USOIL (For example) is reported.
I like it. Never really thought about it like that before, but it’s so obvious when it’s pointed out.
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