What is Price Continuity?
Price continuity occurs when the number of transactions (volume) does not in and of itself affect a security's price.
How Does Price Continuity Work?
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 Does Price Continuity Matter?
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.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
