September 3, 2020

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A physical tight market may occur due to a temporary imbalance of supply and demand, or a more lasting change in fundamentals. It's the difference between the buyer's and seller's prices—or what the buyer is willing to pay for something versus what the seller is willing to get in order to sell it. Intense price competition on both the buyers' and sellers' sides leads to tight spreads, the hallmark of a tight market. There are many different order types. A market with narrow bid-ask spreads. 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Narrow the Spread To reduce the bid-ask spread. Some experts say that narrow margins are actually indicative of phantom liquidity with high-frequency trades where orders are placed in large batches and then quickly canceled if the price of a security changes unfavorably. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional. A bid-ask spread is the amount by which the ask price exceeds the bid price for an asset in the market. When the bid and the ask prices are close, there is a small spread. Tight markets tend to occur in highly liquid, high-volume, blue-chip stocks where there are an abundance of buyers and sellers at all times. There are … There are many compounding factors that can affect how wide or narrow the spread is between the ask and bid price. Volatility usually increases during periods of rapid market decline or advancement. When liquidity is lower, trades tend to be broken up in more digestible segments. A market with narrow bid-ask spreads. The bid-ask spreads in a tight market can be quite small, maybe one cent wide or even less in some cases. On the other hand, if the price difference is wider, that means they don't see eye-to-eye. The market price is the cost of an asset or service. When volatility is low, and uncertainty and risk are at a minimum, the bid-ask spread is narrow. Market makers will narrow the spread as trading in a particular security becomes more active and competition increases. The spread between the bid and ask prices generally represents a form of negotiation between two parties—the buyer and the seller. Your investment strategy and the amount of risk that you are willing to take may affect what bid-ask spread you find acceptable. The difference between the bid and ask prices is what is called the bid-ask spread. 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