A cross market occurs when the bid price for a security is higher than the ask price, which is considered abnormal. It can be caused by high trading volume or artificial bid prices. It is unlikely to last long and will stabilize unless there are significant disruptions in the economy.
A cross market is a market situation in which the bid price associated with a specific security is higher than the ask price. This type of market event is generally considered contrary to normal market conditions, in which the bid or ask price would be higher than the bid price. This type of situation is more likely when the overall market is highly volatile and the volume of trading activity is significantly higher than usual.
While a cross market can develop as a result of unforeseen events that occur during the trading day, such as an unusually high influx of electronic orders, there is a greater chance that this market situation will develop when an extremely high amount of trade is entered. orders before the official market opening at the beginning of the day. When this occurs, the imbalance in the bid-ask spread may be evident at the open of the market. Unless unusual circumstances develop within the economy that continue to fuel this phenomenon, there is a good chance that the gap between the buy and sell price will continue to narrow during market opening hours, ultimately restoring the situation. from the normal market. .
It is also possible to artificially create a cross-market situation by deliberately posting bid prices that are not in line with the bid or bid prices. This type of activity is generally considered unethical in most markets and is actually illegal in others. The reason this strategy is frowned upon is that it allows a limited number of market makers to take advantage of the situation and possibly continue to make it last for a longer period of time while buying and selling. that would not be possible in a normal market situation.
For the most part, a cross market is not likely to last for an extended period of time unless there are significant disruptions in the broader economy that have a direct impact on the specific securities being traded in the market. Those unforeseen events can include the sudden resignation of key players within a major publicly traded company, the occurrence of some kind of natural disaster, or even some events like hostile takeovers of companies or the overthrow of a government. In most situations, the cross market will begin to stabilize within a short period of time, allowing the market to regain equilibrium and restore the relationship between the bid and ask prices to a state that is considered normal rather than abnormal.
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