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What is a Weak Market?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 November 2016
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Weak markets are an economic condition that exists when three particular factors are present. First, a weak market will have an unusually high number of sellers. In contrast, few buyers will be interested in engaging with the sellers. Last, there will appear to be a downward trend in the prices involved for the products or investments involved in the weak market.

Because a weak market is created when sellers vastly outnumber buyers, this creates a situation in which the volume is sluggish and somewhat low, leaving the spread somewhat high. The downward trend that is also a characteristic of this market condition is often the result of sellers attempting to gain the attention and favor of the few buyers that may have an interest in the investment or product. As it becomes harder for the seller to generate interest, he or she will often use a lower price as an incentive to connect with a buyer and complete the transaction.

In a sense, a weak market can be a positive situation for the buyer. This is particularly true if there is some indication that the investment will begin to appreciate in value at a later date. Buyers can acquire stocks, property, and other investments at low prices due to the current lack of interest. By holding on to the investment until circumstances change, it is often possible to make a huge return.

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Generally, there is not much of a positive side for the seller. With next to no demand for the investment, the seller often ends up selling off the asset at a loss. Perhaps the only productive aspect of the situation is that once the sale is complete, the seller no longer has to face the downward spiral of the price and the resulting loss of more revenue on the investment.

A weak market usually does not last for an extended period of time. In some instances, sellers may choose to ride out the downward trend. The hope is that the investment will eventually bottom out and then begin an upswing in value. In the interim, the loss on the investment may be used to create a tax break.

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