A closed market has a tight spread between bid and offer prices, which can be caused by high trading volume, market makers, or external factors. This is opposed to an open market with wider spreads, and both can offer profitable opportunities for investors.
Closed market is any investment market currently characterized by a tight spread situation. This normally results in a very small difference in the spread between bid and offer prices. Several different factors can come together and create a closed market situation that can last for a short time or stay in place for an extended period of time.
One of the factors that can help create a closed market is the amount of trading currently taking place in the market. When trading volume is at a low to moderate level, there is no real incentive to develop a tight market situation, as bid and offer prices are likely to differ more in range. However, a high volume of trading activity will promote great competition for the investments that make up the market. This high volume means that bids and bid prices will start to taper off slightly.
Along with the level of trading volume within the closed market, various other market makers can also affect the spread between the bid and offer prices. Tight spreads may be affected by factors such as political unrest, currency devaluation or acts of nature affecting the value of the underlying security associated with some of the major investment opportunities which account for the majority of trading in the market. Often, the emergence of a market maker can lead to the emergence of other factors which combine to help create the closed market.
The concept of a closed market is in direct opposition to an open market. Markets considered open have wide spreads rather than tight spreads. The wide spread between bid and ask prices is not necessarily better or worse than the tight spreads found in closed markets. Depending on the position of the investor, profitable acquisitions and sales can be made in both types of markets. As with all investment strategies, the investor should thoroughly evaluate the situation before placing an order with the broker.
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