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Let’s say the symbol you track is trading at 80 and within the last week it has ranged within 77‒81, with the one-month history also looking favourable to waiting to buy. Would you put in a market order or a limit at 79? If you can wait until it hits 78 you automatically just made a 2.5% return greater than if you had started at 80—without having to wait around for a quarter or half a year for the risky 7% annual upward stochastic drift to take you there.
People refer to a trade as a "cross" because bid and ask usually do not cross.
Markets with low volume, businesses that fail, and every item and service in the world† except the ones that are heavily traded, has far away bids and asks.
† I would add that my last example doesn’t really work because "theoretically they would buy at some price" is not the same as testing potential buyers with a real offer. Even making a cold sales call and pitching what your startup will do for this established company may not be the full dose of realism necessary to establish Price in the sense that we have it for continuously trading markets in front-month class II milk, where at least for transactors of a certain size one can realistically and timely-ly offload or pick up more of this thing.
Noise is like the Heisenberg
your measurement device gets bumped
precision
The idea that "the market" is a machine that tries to measure "the true price"
A less
If you don’t look at
- options
- futures
- commitment of traders
then you are not using all of the publicly available information about your favourite stock index.