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In Finance, what is a Real Market?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 November 2016
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    Conjecture Corporation
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The real market is the range that exists between the price that is asked for a product, and the amount that the consumer is willing to pay. Identifying the range of this market does not necessarily involve identifying the fundamental value of the product, or even the retail price that the product demands in other markets. Both buyers and sellers seek to identify the scope of the real market as they attempt to create a transaction that is mutually beneficial.

For the seller, understanding the current real market can increase the chances of making a sale. Setting the asking price often involves considering the current level of demand for the product, as well as looking at the prices of competitor goods that are similar in nature and readily available to the consumer. If the goal is to maintain current business while also earning business away from competitors, the seller will set the asking price at a level that is sure to attract attention and highly likely to motivate consumers to buy.

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Buyers also seek to determine the scope of a real market, as it relates to some product that they wish to acquire. Here, the focus is on determining the level of interest in the product, and how it would benefit the buyer. From there, the buyer looks at the available range of competitive products, compares them for value and quality, and arrives at a price he or she is willing to pay in order to own the product. Under the best of circumstances, the amount the buyer is willing to pay is in line with the price desired by the seller, allowing both parties to gain from the transaction.

The concept of a real market is also common to investment activity. Here, a dealer will look closely at both the bid and ask quotes associated with a given transaction. Ideally, the dealer can match the bid price of a potential buyer with the ask price of a seller, making it possible to broker the deal, allow both parties to be happy with the terms of the transaction, and collect fees for the brokered deal.

Another application of a real market can involve the creation of an investment strategy that calls for buying shares of a given security when it reaches a certain price, and then selling those shares at a specific higher price. With this arrangement, the investor provides the dealer with instructions to execute each segment of the order when and as those bid and ask prices become viable. A strategy of this type can allow the investor to earn a significant amount of return, provided he or she is able to hold the asset for as long as necessary to achieve the desired result.

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