DEFINITION of ‘Parity’
1. In general, a situation of equality. Parity can occur in many different contexts, but it always means that two things are equal.
2. The official value.
3. In an exchange market, when all brokers bidding for the same security have equal standing due to identical bids.
BREAKING DOWN ‘Parity’
1. For example, in the foreign-exchange market, currencies are at parity when their exchange rate is exactly 1 to 1.
2. In other words, the par value.
3. When parity occurs, the market must determine which bidding broker will obtain the security by alternative means. Therefore, the winning bid is typically awarded by random draw.