Importance of Price Discovery and Liquidity

Price discovery and liquidity are crucial concepts in financial markets, playing a vital role in the balance between supply and demand. A well-functioning market exhibits tight bid-ask spreads, indicating significant buying and selling interest. The integration of technology has facilitated electronic trading, allowing users to engage in almost continuous buying and selling across various asset classes, including stocks, bonds, and cryptocurrencies. This technological advancement has made the price discovery process more efficient, yet it often leads market participants to overlook the complexities involved in determining accurate prices.