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Wide markets are a phenomenon that involves the presence of a relatively large spread between bid and offer prices on particular investments. The wide market is the opposite of a close market, where there is only a small spread between bids and offers. A wide market usually takes place when there is a lower amount of trading taking place, and only a few market makers currently active.
Close markets tend to be a more desirable set of circumstances for both the buyer and the seller. Because a close market involves a great deal of trading activity in a market that is supported with a number of competing market makers, there are greater opportunities to make a return on an investment. By contrast, a wide market tends to be less interesting to investors and does not do much to entice people to engage in trades. The increased spread between offer prices and bid prices associated with thi type of market also tends to act as a deterrent, offering investors no real incentive to place orders.
As with most market trends, a wide market may be a localized phenomenon or a trend that is occurring throughout several markets at once. Fortunately, the conditions normally do not last for an extended period of time. Once the level of active trading begins to increase, the spread between offer prices and bid prices will begin to narrow to a more equitable range. This in turn will fuel more interest in trading, and allow the market to recover from the wide period.
A wide market can occur in just about any regulated market environment. Since the impact of this type of market is usually temporary, investors and brokers can often identify the onset of such a market condition, as well as accurately predict when the trend will discontinue. This can allow the investor to prepare for weathering the period, be mindful of some stocks to pick up while the trading volume is low, and how to position in order to make the most return once an upswing begins.
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