What characterizes a competitive financial market?

A competitive financial market is characterized by numerous buyers and sellers, where no single participant has the power to significantly influence the prices of securities. This condition ensures that prices reflect the aggregate knowledge and opinions of all market participants. When many traders are active, the actions of any individual participant have a negligible impact on the overall market dynamics, leading to efficient pricing where securities are priced based on available information.

In such markets, information tends to be rapidly disseminated, and securities quickly adjust to reflect new data, maintaining the integrity and fairness of pricing. This equilibrium enables investors to make decisions based on real-time information without concerns about manipulation or dominance by large players in the market.

The other options do not accurately reflect the nature of competitive markets. For example, while low prices might seem attractive, they are not a defining characteristic of competitiveness but rather a result of supply and demand dynamics. Moreover, having more supply than demand does not characterize a healthy market; it could indicate an imbalance or inefficiency. Lastly, prices being determined solely by insider trading undermines market fairness, as it suggests that privileged information is exclusively available to certain participants, which is contrary to the principles of a competitive market.