Smart Market

AAA

DEFINITION of 'Smart Market'

A type of auction in which transactions are made to and from a pool of participants rather than bilaterally between one buyer and one seller. Smart markets are designed to reduce transaction costs and the effect of externalities, and are monitored by a market manager.

BREAKING DOWN 'Smart Market'

Smart markets have been made possible by improvements to technology, as the calculations in their deployment can be complex. Participation in a smart market often requires the payment of an upfront fee as well as a per-unit bid. For example, the use of a smart market in electricity pricing has computers review the bids of power distributors to determine how much electricity to supply compared to the overall capacity of transmission lines. Calculations determine how much each power generator should generate, the transmission lines that will transfer power from the generators to the distributor and how much power each distributor will process.

RELATED TERMS
  1. Bidding War

    A situation where two or more buyers are so interested in an ...
  2. Reverse Auction

    A type of auction in which sellers bid for the prices at which ...
  3. Dutch Auction

    1. A public offering auction structure in which the price of ...
  4. Auction

    A system where potential buyers place competitive bids on assets ...
  5. Equity Market

    The market in which shares are issued and traded, either through ...
  6. Equity

    The value of an asset less the value of all liabilities on that ...
Related Articles
  1. Investing Basics

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  2. Options & Futures

    The NYSE And Nasdaq: How They Work

    Learn some of the important differences in the way these exchanges operate and the securities that trade on them.
  3. Bonds & Fixed Income

    The Fed's New Tools For Manipulating The Economy

    The economy can be volatile when left to its own devices. Find out how the Fed smoothes things out.
  4. Bonds & Fixed Income

    Calculating Yield to Worst

    Yield to worst is the lowest possible yield on a bond that may be called in the future.
  5. Fundamental Analysis

    Explaining the Central Limit Theorem

    Central limit theorem is a fundamental concept in probability theory.
  6. Investing Basics

    What Happens in a Haircut?

    One meaning of haircut is the difference between prices at which a market maker can buy and sell a security.
  7. Investing Basics

    Explaining Delivery Versus Payment

    Delivery versus payment is a common procedure for settling the exchange of securities.
  8. Investing Basics

    What is Convertible Preferred Stock?

    Convertible preferred stock is preferred stock that can be converted into common stock as of a predetermined date at a specified ratio.
  9. Investing Basics

    What Does Clawback Mean?

    A clawback occurs when money or benefits that have been distributed are taken back because of unforeseen or unusual circumstances.
  10. Investing Basics

    What is the Theory of Backwardation?

    Backwardation occurs when the futures price of a commodity is lower than its market price today.
RELATED FAQS
  1. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  2. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  3. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>
  4. What are the requirements for being a Public Limited Company?

    The requirements for an entity to be considered a public limited company (PLC) include registration requirements, establishing ... Read Full Answer >>
  5. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  6. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  2. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  3. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  4. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  5. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  6. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!