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From Theory To Practice

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Price Discovery

From Theory To Practice

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Price Discovery, a term that you’ve probably heard us toss around a time or two, is actually an integral part of the trading process. The market maker always maintains a market, where he is ready to be the counterparty to our trade. If we are willing to transact at his prices, we can be filled immediately on these orders. However, we could also attempt to work the order inside of the posted quote, and sell above the bid, buy below the ask, or anchor somewhere around the midpoint between the two. Mike (from Everyday Trader) joins us in the studio and brings with him the perfect example to illustrate the important role that liquidity plays in this process.

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