Wide markets have a large spread between bid and offer prices, while close markets have a small spread. Broad markets are less attractive to investors and occur when there is less trading and few market makers. Once trading increases, the spread will narrow, and the market will recover. Investors can prepare for a large market and pick up stocks while trading volume is low.
Wide markets are a phenomenon that involves a relatively wide spread between bid and offer prices on particular investments. The broad market is the opposite of a close market, where there is only a small spread between bids and offers. A large market usually occurs when there is a smaller amount of trading and only a few market makers are currently active.
Neighboring markets tend to be a more desirable set of circumstances for both buyer and seller. Because a close market involves a great deal of trading activity in a market that is supported by a number of competing market makers, there is a greater opportunity to get a return on an investment. Conversely, a broad market tends to be less attractive to investors and doesn’t do much to entice people to engage in trades. The increased bid-ask price spread associated with this type of market also tends to be a deterrent, giving investors no real incentive to place orders.
As with most market trends, a broad market can be a localized phenomenon or a trend that is occurring across multiple markets simultaneously. Fortunately, the conditions don’t normally last for an extended period of time. Once the active trading level starts to increase, the spread between bid and offer prices will start to narrow to a more even range. This in turn will fuel more interest in trading and allow the market to recover from the broad period.
A large market can occur in any regulated market environment. Because the impact of this type of market is usually temporary, investors and brokers can often identify the onset of such a market condition, as well as accurately predict when the trend will end. This can allow the investor to prepare for weathering the period, factor in some stocks to pick up while trading volume is low, and how to position yourself for maximum returns once the recovery begins.
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