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Current price is something many traders interact with daily, but what is it?
In this article, we’ll explore the concept of current price and its various types, how it’s determined, and its role in financial markets.
Current price, also known as market price, refers to the value of an asset at a particular moment in time. It’s the last traded price of an asset and constantly changes, reflecting the real-time dynamics of the market. The current price of an asset is influenced by supply and demand and is the outcome of interactions between market participants, like traders, investors, brokerages, and dealers.
The bid price is the highest price a buyer (dealer or market maker) is willing to pay for an asset, while the ask price is the lowest price a seller (dealer or market maker) is willing to accept. This is the current price. It is important to remember that we, as traders and investors, must buy (sell) at the ask price (bid price). As an example, a stock’s share price may have a bid of $100.01 and an ask of $100.02. The difference is known as the bid/ask spread.
If a buyer thinks an asset will increase in value, they may submit a market order to buy at the next available price (the ask price) or even use a limit order (pending order) to buy at a higher price above the current ask price. In both scenarios, the current price is the last price a buyer pays for the asset.
A stock’s share price, or stock quote, is its current price or the last price someone paid for a given number of shares. The current price of a stock is determined by supply and demand in the stock market, which in turn is influenced by company performance, macroeconomic factors like interest rates, industry news, and more.
Cash price, or spot price, refers to the current price of an asset being traded for cash or immediate delivery (however, do be aware that for most currencies, the actual settlement period is T+2 [‘T’ refers to Transaction Date plus two days]). This is in contrast to a futures price. Futures contracts are derivatives that specify the price and date of an asset that will be bought or sold at a later date.
For example, crude oil may have a short-term cash price of $80 a barrel, but a futures contract settling in three months may have a price of $85 a barrel, reflecting the market's expectation that the oil price will increase over time. At expiration, the futures price will be the same or almost the same as the current cash price.
The current price of an asset is the foundation for every investment decision made. By providing a real-time market valuation, current price helps market participants determine the value of an asset relative to its intrinsic value, financial metrics, and market conditions.
Whether looking at a chart, figuring out a stock’s price-to-earnings (P/E) ratio, or setting a stop loss, current price is a critical component that makes all these actions possible. In fact, current price is the common thread that connects all financial markets. Without current price data, these markets would function inefficiently.
Besides the types of current price already given, like share price and cash price, there are a couple of others to be aware of.
A bond’s current price is determined as a percentage of the bond’s par value. So, if a bond’s current price is 98 and the par value is US$1,000 (most bonds have a face value of US$1,000), the bond’s price is US$980, trading at a discount.
For a bond trading at a premium, the face value could be US$1,000, and the current price is quoted at 105, which means US$1,050, or a premium to par.
Whereas the last sale price determines the current price in an exchange-based market, the current price in OTC markets is set by a limited number of dealers that quote their preferred bid and ask prices. This price fluctuates according to supply and demand.
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