What is it? Simple and likely self-explanatory, but just not mentioned in the text for reading 16
As in derivatives?
It simply means that they provide a mechanism for investors to provide their ideas about the price of the underlying security.
Fpr example, many investors are prohibited from short sales, so it’s difficult for the market to see their views that a security is overpriced; they would simply not buy it. However, if they’re allowed to buy options, they can make their views known by buying out-of-the-money put options.
More so in reference to an auction market versus an electronic crossing network. Why would an electronic crossing network not allow price discovery due to not knowing the counterparty? This is word for word from schweser, and given you are doing the trade the short sale example doesn’t make sense to me
Like if the nasdaq is an electronic crossing network I see the price when someone trades - done. I am either missing what price discovery is or what an electronic crossing network is. Is it a dark pool where institutions only trade with each other and don’t tell anyone about it?