Price transparency definition
Price transparency
Price transparency is the extent to which all relevant information is available around trading quantities, bid prices, and ask prices of a security so all agents are operating with the same information. Higher transparency allows traders to make better decisions about what securities to invest in and limits barriers to entry.
Price transparency varies between different exchanges. Some, like the NYSE, offer limited price information, such as the highest and lowest bid. Others, like Nasdaq, provide a full suite of information against each stock including trading quantities, bid prices, and ask prices.
What is market efficiency?
Market efficiency relates to how information about market prices is available to all agents and tied into the price of an asset to allow supply and demand to operate freely and efficiently. In theory, market efficiency means that all traders work an even playing field.
An inefficient market means that an asset’s price is not a fair price because it lacks full transparency. This means excess profits, or losses can be made due to over or undervaluation.