Price discovery refers to the act of determining a common price for an asset. It occurs every time a seller and buyer interact in a regulated exchange. Because of the efficiency of markets and the ability for the instant dissemination of information, bid and ask prices are available to all participants and are instantly updated across the globe.
This can occur with:
Price discovery is the result of the interaction with sellers and buyers, or in other words, between supply and demand and occurs thousands of times per day.
Liquidity of the security (asset) is a major component to price discovery. Markets with greater liquidity tend to have more accurate pricing. When assets are not liquid, the spread between bid and ask can be large.
