Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Price Continuity

What it is:

Price continuity occurs when the number of transactions (volume) does not in and of itself affect a security's price.

How it works (Example):

In trading, buyers offer bid prices and sellers offer asking prices. The difference between the bid and ask (the bid-ask spread) is usually much smaller if the market for the traded security is large.

Price continuity is a sign that there are a lot of buyers and sellers in the market for a particular stock. For example, if Company XYZ is a widely-held stock, the bid-ask spread may be $0.25. Regardless of whether the price goes up or down, if there is price continuity, the bid-ask spread will remain relatively constant.

Why it Matters:

Price continuity is an indication that there are a substantial number of buyers and sellers available. In turn, it is an indirect reflection of a security's risk. For this reason, NYSE specialists are tasked with providing price continuity in the markets by acting as a liquidity provider when it's difficult to match buyers and sellers at a given time. This responsibility, of course, can cost a specialist a lot of money, but it is also a potential source of financial gain.

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