Transparency (market)

In economics, a market is transparent if much is known by many about: What products and services or capital assets are available, What price, and Where. Transparency is important since it is one of the theoretical conditions required for a free market to be efficient. Price transparency can, however, lead to higher prices, if it makes sellers reluctant to give steep discounts to certain buyers, or if it facilitates collusion. A high degree of market transparency can result in disintermediation due to the buyer's increased knowledge of supply pricing.

There are two types of price transparency: 1) I know what price will be charged to me, and 2) I know what price will be charged to you. The two types of price transparency have different implications for differential pricing. A transparent market should also provide necessary information about quality and other product features.

While the stock market is relatively transparent, hedge funds are notoriously secretive. Some financial professionals, including Wall Street veteran Jeremy Frommer are pioneering the application of transparency to hedge funds by broadcasting live from trading desks and posting detailed portfolios online.

There is a rich literature in accounting that takes a critical perspective to market transparency, focusing on the nuances and boundaries. For example, some researchers question its utility (e.g. Etzioni). This also connects to the performativity of quantitative models. Specific cases include transparency in the art market. There are also studies from finance that note concerns with market transparency, such as perverse effects including decreased market liquidity and increased price volatility. This is one motivation for markets that are selectively transparent, such as "dark pools."

There are few markets that require the level of privacy, honesty, and trust between its participants as the FX market. This creates great obstacles for traders, investors, and institutions to overcome as there is a lack of transparency. With little to no transparency trader’s ability to verify transactions becomes virtually impossible. Without transparency there is no trust between the client and the broker. Companies such as Fair Trading Technology and their T3 Integration Bridge allows traders to trade with transparency and the ability to verify that each trade makes it to the market.

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