What Is Market Value?
Market value refers to the current price of an asset, market-traded security, or company. More simply, it’s used to describe the value of these on the market.
Market value may also be referred to as open market valuation.
Is Market Value the Same as Fair Market Value?
An asset’s market value is determined by fluctuations in supply and demand. Market value represents what someone is willing to pay for an asset, not its perceived value or its intrinsic worth.
Fair market value, however, is a general measurement of an asset’s value that’s agreed to by a buyer and seller. It tends to be more stable than market value (which is more affected by supply and demand).
Example of Market Value
Beth is selling her house for $300,000. However, no one is willing to buy the home for more than $250,000. Even though the house is being offered at a higher price, its market value is only $250,000.
Why Is Market Value Important?
One of the most important factors when purchasing a security is its market value. Many investors (especially value investors) select securities or assets based on disconnects between market value and what they perceive the security is worth. They do this in the hopes they might have uncovered a future star for a discount price.