Posted in Marketing and Strategy Terms, Total Reads: 507
Definition: Narrow Market
A market characterized by a low number of buyers and sellers is called as Narrow Market. The volatility of price is high and liquidity of assets is low because only few transactions occur in the market. Narrow markets often present a scenario where there are very few investors who are selling and buying particular shares etc.
Therefore any activity might result in a big increase or decrease in prices. It is also known as thin market. Due to the low number of bids a wider spread is observed between the quotes. If there are any abrupt supply side or demand side changes which result in more number of sellers than buyers or vice versa, a dramatic effect on prices can be observed in general. The market generally has only a few players in the market from supply side as well as demand side, thus even a small variation in any side disrupts the status quo and we observe a large implication of it on the market.
The prospective sellers and buyers could face difficulty while making transactions in a narrow market because a low number of asks and bids are quoted. Since only a few shares are available for sale, sharp variations in price is observed. The small volume of trade, few people calling the shots, low liquidity of assets and risks like high price volatility create problems for investors who try to venture in narrow markets.