Black Market

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS '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. Bitcoin

    A digital or virtual currency that uses peer-to-peer technology ...
  2. Gray Market

    An unofficial market where securities are traded. Gray (or “grey”) ...
  3. Linden Dollar

    A digital currency utilized in the virtual world Second Life. ...
  4. Shadow Market

    An unregulated private market in which investors can purchase ...
  5. Rationing

    The artificial restriction of raw materials, goods or services. ...
  6. Whistleblower

    Anyone who has and reports insider knowledge of illegal activities ...
RELATED FAQS
  1. How do I identify a gray market?

    The term "gray market" refers to the market for the purchase and sale of uncirculated securities that will be offered at ... Read Full Answer >>
  2. What are the primary sources of market risk?

    Market risk is the risk of loss due to the factors that affect an entire market or asset class. Market risk is also known ... Read Full Answer >>
  3. In what types of economies are regressive taxes common?

    Regressive taxation systems are more likely to be found in developing countries or emerging market economies than in the ... Read Full Answer >>
  4. What is the difference between a simple random sample and a stratified random sample?

    Simple random samples and stratified random samples differ in how the sample is drawn from the overall population of data. ... Read Full Answer >>
  5. What causes politicians or governments to begin "pork barrel" spending?

    Pork barrel spending occurs when the government taxes the general population to hand out concentrated benefits to special ... Read Full Answer >>
  6. How do markets account for systematic risk?

    Systematic risks provide markets with an unpleasant quandary. Economists, policy makers, directors, fund managers and investors ... Read Full Answer >>
Related Articles
  1. Personal Finance

    The Rise And Fall Of The Shadow Banking System

    We look at the evolution, failure and fallout from the shadow banking system.
  2. Options & Futures

    Handcuffs And Smoking Guns: The Criminal Elements Of Wall Street

    From godfathers to perps, familiarize yourself with the "criminal elements" creeping around Wall Street.
  3. Economics

    Defining Illegal Insider Trading

    The better you understand why insider trading can be criminal, the better you'll understand how the market works.
  4. Economics

    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.
  5. Economics

    Illegal Activities That Could Help The Economy

    Legalizing prostitution and street drugs nationwide may actually benefit the economy.
  6. Economics

    The Mechanics Of The Black Market

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

    Some Thoughts On The Shadow Market

    The "shadow market" is a broad-based moniker with both positive and negative connotations.
  8. Economics

    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.
  9. Investing Basics

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  10. Economics

    Will The US Economy Rebound In The 2nd Quarter?

    Most investors know that U.S. 1st quarter growth numbers aren’t pretty. Economic statistics have been missing expectations by the largest margin since 2009

You May Also Like

Hot Definitions
  1. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  2. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  4. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  5. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center