A locked market occurs when buy and sell prices for a security are identical, eliminating the bid-ask spread. It can happen in both equity and futures markets due to various reasons, but is usually a short-term situation that resolves once the issue is resolved. Investors are not typically alarmed by a locked market.
A locked market is a short-term situation that can occur within a market. The phenomenon occurs when the buy and sell prices associated with a certain security are identical. Market conditions of this nature can be experienced in both an equity market and a futures market. This set of circumstances effectively eliminates any difference in the bid-ask spread between the two prices. A stuck market is more likely to occur in markets that are experiencing a large amount of trading volume, but rarely last for any appreciable period of time.
There are several different reasons why the bid price and the ask price might be the same for a short period of time. The most common occurrence has to do with the activity of the buyer and the seller in the transaction. If the initiator of the transaction has submitted the payment, but the other party has not yet received the payment, the block will appear and remain in place until the payment is received. This is particularly true in situations where one party has paid the brokerage involved in the transaction but that payment has not been credited to the other party’s account. Once the transfer is complete, the blocked situation is resolved and trading can continue as before.
In a futures market, a black market can occur due to the high volume of trading activity that has occurred during the current trading day. If prices reach their daily limit movement, prices are frozen at those values until the next trading day. During that time period, there is no difference between the bid and ask prices. Once the new day begins, any orders entered before the official market open is usually enough to establish the spread once more and trading activity begins to pick up once again.
It is important to remember that a closed market does not mean that the market has suffered any type of permanent damage. Neither does this type of occurrence in the market automatically indicate any type of negative security feature involved in the lock, or that a buyer or seller has engaged in activities that will create any type of ongoing disruption to that market. Once the circumstances that created the locked market are resolved and the bid-ask spread is restored, the market will continue as before. For this reason, investors are rarely alarmed by a locked market and simply focus on other investment activity until the lock is resolved.
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