For financial reporting and fair valuation purposes, market participants are strictly defined as:
Buyers and sellers in the principal (or most advantageous) market for the asset or liability being fair valued, that have all of the following characteristics:
- They are independent of each other.
- They are knowledgeable, having a reasonable understanding about the relevant asset or liability and the transaction using all available information, including information that might be obtained through due diligence efforts that are usual and customary.
- They are able to enter into a transaction for the asset or liability.
- They are willing to enter into a transaction for the asset or liability, i.e. they are motivated but not forced or otherwise compelled to do so.
Defined more broadly, a 'market participant' is a company, a person or any other entity participating in a market.