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A closed market is characterized by a tight spread situation with a limited difference between bid and ask prices. Factors such as trading volume, market makers, and external events can influence the spread. Closed markets are in opposition to open markets, but both can offer profitable acquisitions and sales opportunities.
The closed market is any investment market that is currently characterized by a tight spread situation. This normally implies a very limited difference in the spread between the bid prices and the ask prices. Several different factors can come together and create a close market situation that can either 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 trade that is currently taking place in the market. When trading volume is at a low or moderate level, there is no real incentive for a near market situation to develop, as the bid and offer prices are likely to differ further in their range. However, a high volume of trading activity will promote strong competition for the investments that make up the market. That high volume means that bidding and offer prices will start to drop a bit.
Along with the level of trading volume within the closed market, various other market makers can also influence the spread between bid and offer prices. Narrow spreads can be affected by factors such as political unrest, currency devaluation, or acts of nature that affect the value of the underlying security associated with some of the major investment opportunities that account for the majority of trading in the market. Often the emergence of a market maker can lead to the emergence of other factors that combine to help create a closed market.
The closed market concept is in direct opposition to an open market. Markets that are considered open have wide spreads instead of narrow spreads. The wide spread between bid and ask prices is not necessarily better or worse than the narrow spreads found in nearby markets. Depending on the position of the investor, it is possible to make profitable acquisitions and sales in both types of markets. As with all investment strategies, the investor should assess the situation thoroughly before placing an order with the broker.
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