What causes the ASK and BID price to change? | Traders Hideout

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What causes the ASK and BID price to change?

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artemiso View Post
Let's take this example to the extreme. Let's say I'm going to be a market maker on used underwear. No one (I think) wants to buy or sell used underwear because of obvious reasons, and I'd probably be the only market maker for used underwear.

I don't necessarily know what the price of used underwear is, but if someone exploits this to load me with a ton of used underwear with human feces on it, that would be pretty toxic and I'd lose money, so I would bid very low at 100@$0.01. I risk being unable to short locate if someone buys the underwear from me, so I would offer very high at 100@$9999.99.

Now suppose I hear that some pervert is coming around and is buying all the used and unused underwear, I anticipate that the fundamental value of used underwear has gone up because of the underlying demand, and I could widen my offer to 100@$15000.00. No trades are needed for me to price my quotes.

Interesting analogy

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