Black Market

What is the 'Black Market'

Economic activity that takes place outside government-sanctioned channels. Black market transactions usually occur “under the table” to let participants avoid government price controls or taxes. The black market is also the venue where highly controlled substances or products such as drugs and firearms are illegally traded. Black markets can take a toll on an economy, since they are shadow markets where economic activity is not recorded and taxes are not paid. In the financial context, the biggest black market exists for currencies in nations with strict currency controls. While most consumers may shun the black market because they consider it sleazy, there may be rare occasions when they have no choice but to turn to this necessary evil.

BREAKING DOWN 'Black Market'

The black market's many drawbacks include the risk of fraud, the possibility of violence, being saddled with counterfeit goods or adulterated products (which is especially dangerous in the case of medications), and the fact that the buyer has no recourse.

As for currency black markets, they exist primarily in nations that – apart from currency controls – have weak economic fundamentals (such as a high inflation rate and low currency reserves) and a fixed exchange rate where the domestic currency is pegged at an unrealistically high level to the US dollar or other currency. As a result, the currency black market is flourishing in nations like Argentina, Iran, and Venezuela.

Participating in the black market is not always a black and white matter. Suppose you are on vacation with your family in an exotic location and run out of formula for your baby? If there is nothing available in local stores and the only way to acquire baby formula is through a black market transaction, few people would hesitate to make the purchase.

What about paying three times the face value of a ticket to a scalper to see your favorite band or football team? This is also a black market transaction that most people may find justifiable. Further, in a number of developing nations, life-saving medicines are in short supply and often, the only alternative is to procure them through the black market. While critics may carp that this only serves to perpetuate the illegal and unethical practice of profiteering from someone else’s misfortune, participating in the black market is a relatively easy decision to make when someone’s life is at stake.

RELATED TERMS
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, ...
  2. Black Money

    Money earned through any illegal activity controlled by country ...
  3. Black Box Accounting

    The use of complex bookkeeping methodology in order to make interpreting ...
  4. Black Box Model

    A computer program into which users enter information and the ...
  5. Black Swan

    An event or occurrence that deviates beyond what is normally ...
  6. Black's Model

    A variation of the popular Black-Scholes options pricing model ...
Related Articles
  1. Investing

    The Mechanics Of The Black Market

    Black markets will continue to exist as long as we have regulations and taxes. Discover how they work.
  2. Investing

    The Big Business Of Black Markets

    Black markets are alive and kicking in all corners of the world, sometimes in plain view. And they are big business.
  3. Markets

    Currency Trading On The Black Market

    The black market for currencies is increasingly becoming prevalent in nations marked by certain adverse economic factors such as high inflation rates and unrealistically high exchange rates.
  4. Personal Finance

    Best Ways to Prepare for Black Friday Deals in 2015

    Prepare yourself for the 2015 edition of Black Friday by devising a plan to navigate the morass of like-minded shoppers and by prioritizing your shopping list.
  5. Markets

    Where Does the Term "Black Friday" Come From?

    The term Black Friday can be used in a couple of different contexts; one positive and one negative.
  6. Markets

    What Happened On Black Monday?

    On October 19, 1987, the Dow Jones dropped 508 points, or almost 22% in a single day. That was Black Monday.
  7. Personal Finance

    Steps To Getting Out Of Debt

    Learn how to get your bank account back in the black and reach your financial goals.
  8. ETFs & Mutual Funds

    4 Ways To Invest In Oil

    Many investors are looking for a way to invest in oil. Find out how you can buy into black gold.
  9. Markets

    Retailers Rebel Against Black Friday: Bad Move?

    The Black Friday creep may have hit a wall as some stores are shutting their doors on Thanksgiving and even Black Friday to give employees the day off.
  10. Personal Finance

    5 Pitfalls Of Shopping On Black Friday

    Black Friday is a fun American tradition, but it comes with dangers. Avoid these things to have a safe day of shopping on Black Friday.
RELATED FAQS
  1. How is the stock market affected by Thanksgiving and Black Friday?

    See why Thanksgiving and Black Friday sales numbers are considered to be important indicators for stock market activity throughout ... Read Answer >>
  2. What is Black Friday?

    Black Friday is a popular label attached to the Friday following Thanksgiving Day in the US. This day marks the beginning ... Read Answer >>
  3. To whom was the term "corporate kleptocracy" first applied?

    The term "corporate kleptocracy" is believed to have originated in a 2004 report by the Special Committee of the Board of ... Read Answer >>
  4. How effective is creating trade entries after spotting a Three Black Crows pattern?

    Understand the basics of the three black crows candlestick pattern and how this reversal signal is used for the creation ... Read Answer >>
  5. How do I implement a forex strategy when spotting a Three Black Crows Pattern?

    Learn a common forex trading strategy traders use to capitalize on the bearish market reversal signal given by the three ... Read Answer >>
  6. How are Three Black Crows patterns interpreted by analysts and traders?

    Understand the basics of the three black crows pattern and how analysts and traders interpret this bearish reversal pattern ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center