What is a Choice Market?

A choice market is a stock market phenomenon that does not occur on a frequent basis. Essentially, a choice market is a short-lived condition in which there is no spread between the bid price and the ask price for a given investment. In other words, the security can be purchased or sold for the same price.

There are a couple of factors that must be present in order for a choice market to appear. First, there must be an extremely high amount of liquidity occurring within the market at that time. When this high amount of securities are being dumped on the open market, it may depress demand and drive prices down on given securities. The end result is that while the stock or commodity may be purchased for a good price, the ability to resell the same commodity at a profit simply does not exist.

A second factor that helps to create a choice market is a temporary limitation on the number of intermediaries available in the market. This condition will often come about as result of the high liquidity factor, in that an extreme amount of liquidity will directly impact the function and availability of intermediaries. When the period of high liquidity lasts for an extended amount of time, limited intermediaries are likely to take place and reinforce the presence of a choice market.

While a choice market can occur in just about any type of securities or trading market, the most frequent appearance of this phenomenon is within the Forex or currency trading market. It is not unusual for currency pairs to have a temporary spread of zero, or to at least experience a situation where the difference is one basis point or less. When the market for a stock or currency is this close to being zero, the situation is often understood to be a precursor to the onset of a choice market.