What does the term "price discovery" refer to in trading?

The term "price discovery" refers to the determination of an asset's price through market interactions. This process occurs as buyers and sellers engage in trades, negotiating prices based on their perceptions of the asset's value, supply and demand dynamics. In an efficient market, price discovery reflects all available information and is influenced by various factors including market sentiment, economic indicators, and trader behavior.

The interaction between buyers and sellers is crucial, as it allows for a continuous update of prices as new information becomes available or as the market conditions change. This helps ensure that the prices reflect the true market value of the asset at any given time.

While the other options touch on relevant aspects of finance and trading, they do not accurately describe the concept of price discovery. Analyzing financial statements is critical for understanding a company's fundamentals but is not directly related to how market prices are set. The calculation of trade execution costs involves understanding the expenses incurred during trading, which is separate from price setting. Predicting future market trends is more about forecasting than the immediate price-setting process that occurs during trading activities.