Price Discovery
Categories: Financial Theory
"By George, I’ve discovered the spot price!"
Price discovery is the process of buyer and seller agreeing on a price to transact an asset. That’s the spot price: the current price something is sold at in a market (an ETF, currency, commodity, or what-have-you). The spot price contrasts to the future price, which is...the price in the future. If people think the future price will be higher than the spot price, you’ll see the spot price rising in anticipation.
Lots of things can affect price discovery: supply and demand, geopolitical events, perceived risk, and the current economy. Ultimately, where supply and demand meet (the equilibrium) is when price discovery ends, and the spot price is born. Like Simba in the Lion King, being shown to the world.
