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Prices fluctuate more when there are fewer buyers and sellers. This reduces the chance that there is both a buyer and a seller who happen to agree on a transact
by mitthrowaway2 3y ago
Prices fluctuate more when there are fewer buyers and sellers. This reduces the chance that there is both a buyer and a seller who happen to agree on a transaction price that is near the previous transaction price. As the number of buyers and sellers decreases, transaction volume decreases and volatility increases as price discovery gets more difficult. When transaction volume decreases to zero, there is no price discovery at all and the market price becomes effectively undefined. This could indicate a coming price crash or spike.
- WalterBright 3y agoIf I sell you my used furniture, there is no discovery at all. We simply sit down and discuss price until we reach a price acceptable to both of us. It doesn't mean there's a coming crash or spike.
- mitthrowaway2 3y agoThe crash would be relative to the previous price that furniture transacted at.
- WalterBright 3y agoIf you bought antique furniture, the used price might go up.
- mitthrowaway2 3y agoYes it might. That one item can swing the whole spectrum from "free on Craigslist" to "$14,950 OBO" depending on how motivated that one seller is, and how motivated that one buyer. One way or the other, its price will have little correlation with how much it previously transacted for. The buyer might even be a knowledgeable antique appraiser who picks it up for free and flips it for $15k the next day. Whereas when there are a whole community of sellers and many buyers for some item (say, a used video game console), the prices tend to change more smoothly and gradually, in smaller increments.