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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.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.