What is the Clearing price?

The actual monetary value is given to an asset. This value in a trade serves as a compromise when a buyer agrees to buy and a seller agrees to sell.

How a Clearing Price Works

In any exchange, sellers want the highest price possible for a security or asset, while investors interested in buying it desire the lowest purchase price possible. At some point, a mutually agreeable price is reached between buyers and sellers. At this point, economists say the market has "cleared," and a transaction has taken place.

Supply and demand are critical elements of the bid-ask process in a securities market. The clearing price of a security or asset will be the price it was most recently traded. In an actively traded market with many participants on both sides, price discovery can be quick, mainly when bid-ask quotes are updated continuously in real-time on an electronic exchange. It will take longer to find a stable clearing price for illiquid or thinly traded securities, such as distressed debt because fewer buyers and sellers are there.

Special Considerations

For products or services, the market-clearing price is also determined primarily by the interplay of supply and demand. The intersection of the downward-sloping demand curve and upward-sloping supply curve represents the equilibrium price, or clearing price, for the product or service.