Price Tension


DEFINITION of 'Price Tension'

The phenomenon by which the seller of a particular good, service or security desires to maximize the selling price, while the buyer desires to minimize the purchasing price. Generally speaking, the greater the price tension within a particular market, the greater the bid-ask spread.

BREAKING DOWN 'Price Tension'

Price tension tends to decrease liquidity and create price stickiness. If price tension is relatively large within a particular market or exchange, there will be larger bid-ask spreads. Sellers will be asking for more than what the vast majority of buyers are willing to pay, which will drastically reduce the number of exchanges made within the market.

Having little liquidity in a given market exposes the investor to liquidity risk, which can result in drastic changes in the security's underlying value.

  1. Liquidity

    The degree to which an asset or security can be quickly bought ...
  2. Sticky-Down

    A figure that can move higher relatively easily, but only will ...
  3. Aggressor

    The party in a trade that initiates the deal. The aggressor works ...
  4. Bid

    1. An offer made by an investor, a trader or a dealer to buy ...
  5. Bid-Ask Spread

    The amount by which the ask price exceeds the bid. This is essentially ...
  6. Ask

    The price a seller is willing to accept for a security, also ...
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