DINEO TSAMELA: The price of a security is determined by both buyers and sellers
Long-term investors generally wouldn't concern themselves with the terms bid, ask and spread, but these terms are important to traders if they are to master the art of trading. Having a fine understanding of these market functions and the impact they have on your trading success is important. To understand these words and their function in the market, we need to understand market dynamics and how the terms play out under different dynamics. The market is driven by supply and demand. You have buyers and sellers of securities, and the relative size of each acts as a price determinant, among many other factors. The number of buyers and sellers and the price difference are liquidity factors. The more buyers and sellers, the more liquid a security is, and vice versa. Liquidity determines how quickly you can buy or sell a security. Liquidity matters because, as a day trader, you want to take advantage of price movements. Illiquid securities don't offer as much flexibility as those that ar...
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