Price discovery is the process by which markets determine the fair value of an asset, commodity, or security, based on the interaction of supply and demand, available information, and participant behavior. This fundamental market mechanism unfolds when buyers and sellers express their willingness to pay or accept certain prices, thereby establishing an equilibrium price that reflects both current market conditions and future expectations.
Price discovery is a continuous process across various domains—such as stock exchanges, commodity markets, real estate, and online marketplaces. Several factors influence it, including trading volume, market transparency, information availability, and the number of active participants. For price discovery to function efficiently, markets must be liquid, accessible, and populated with well-informed participants. Modern electronic trading platforms and algorithmic systems have significantly improved the speed and precision of price discovery across global financial markets.