Open Market

What is an 'Open Market'

An open market is an economic system with no barriers to free market activity. An open market is characterized by the absence of tariffs, taxes, licensing requirements, subsidies, unionization and any other regulations or practices that interfere with the natural functioning of the free market. Anyone can participate in an open market; there may be competitive barriers to entry, but there are no regulatory barriers to entry.

BREAKING DOWN 'Open Market'

In an open market, the pricing of the involved goods or services is driven predominantly by the principles of supply and demand, functioning with limited interference or outside influence of large conglomerates or governmental agencies.

Open Markets versus Closed Markets

An open market is considered highly accessible, with few, if any boundaries, preventing a person or entity from participating. The U.S. stock markets would be considered open markets, as any investor can have the opportunity to participate, and all participants are offered the same prices that only vary in based on shifts in supply and demand.

An open market is the opposite of a closed market – that is, a market one with a prohibitive number of regulations restricting free market activity. Closed markets may restrict who can participate, or they may allow pricing to be determined by any method outside of basic supply in demand. Most markets are neither truly open nor truly closed, but fall on a continuum somewhere between the two extremes.

The United States would be considered to have a relatively open market, as participation within the marketplace is fairly unrestricted, allowing most people who choose to participate to do so and in the same manner as anyone else interested in participating. This is in contrast to North Korea, which has a relatively closed market; participation in the system is highly limited through laws and regulations. The flow of goods and services within the North Korean economy is highly governed, and outside influence is strictly limited.

Open or Closed Trading Hours

An open or closed market paradigm should not be confused with market that is open for business or closed to all operations on only a short-term basis. Most stock markets operate during specified trading hours, and they are considered functionally closed outside of those times.

For example, the New York Stock Exchange (NYSE) has listed trading hours between 9:30 a.m. and 4 p.m. ET on weekdays, with no trading hours on weekend. Additionally, the markets close on certain bank or federal holidays such as Christmas Day and Memorial Day.

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