Smart Market

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. Smart Beta

    Smart beta defines a set of investment strategies that emphasize ...
  2. Smart Beta ETF

    Smart Beta ETF is a type of exchange-traded fund that uses alternative ...
  3. Auction

    A system where potential buyers place competitive bids on assets ...
  4. Reverse Auction

    A type of auction in which sellers bid for the prices at which ...
  5. Transaction Costs

    Expenses incurred when buying or selling securities. Transaction ...
  6. Dollar Auction

    The basic dollar auction is based on the auction of a $1 bill ...
Related Articles
  1. Investing

    3 Reasons Against a Smart Beta Allocation in Your Portfolio

    Find out why smart beta strategies might not be the best bet, and discover 3 reasons why you should think twice before using them to allocate stocks.
  2. Financial Advisor

    Smart Beta ETFs: Understanding the Risks

    Smart Beta ETFs have grown in popularity in recent years. These are the risks that advisors and their clients need to understand.
  3. Markets

    Why 'Smart Beta' Fund Houses are Getting Acquired Like Hot Cakes

    Here’s why the smart fund houses are top targets for acquisition.
  4. ETFs & Mutual Funds

    Smart Beta ETF Myths and Misconceptions

    Discover smart beta exchange-traded funds (ETFs), and learn about some of the common misconceptions and characteristics of this type of product.
  5. ETFs & Mutual Funds

    The True Costs of a Smart Beta ETF (IVV, USMV)

    Consider smart beta ETFs, which can provide superior risk-adjusted returns, but also carry numerous costs and potential pitfalls.
  6. ETFs & Mutual Funds

    3 Ways to Assess Smart Beta Fees

    Explore three ways to asses the expense ratios of smart beta ETFs, including comparisons with passive funds, within the smart beta category and tradings costs.
  7. Financial Advisor

    How to Explain Smart Beta Strategies to Clients

    Smart beta funds continue to gain steam. Here's how to explain the benefits of these strategies to clients.
  8. Managing Wealth

    Top 5 Smart Beta FAQs

    In the first half of 2015 we’ve seen many of our smart beta predictions fulfilled. So, here are a handful of common questions and answers investors have.
  9. ETFs & Mutual Funds

    Are All Smart Beta Strategies Really Smart? (PKW, SPYB)

    Explore the methodologies used by smart beta funds and the reasons their strategies for stock selection may not be all that smart.
  10. Investing

    Strategic/Smart Beta: What Investors Should Know

    Here’s what your clients need to know about smart beta funds and how they can impact their portfolios.
RELATED FAQS
  1. How do I use smart beta funds to create a diversified portfolio?

    Learn how smart beta funds may give greater diversification than passively tracking stock indexes and make active management ... Read Answer >>
  2. What is the difference between a smart beta fund and an index fund?

    Learn about the differences between smart beta funds and index funds and how market capitalization is used to construct index ... Read Answer >>
  3. Is smart beta cheaper than hedge funds?

    Discover how to estimate and compare the added expenses for smart beta strategies and hedge funds to see if they are the ... Read Answer >>
  4. How can smart beta be used in trading bonds?

    Learn how smart beta strategies are being used to construct alternative groups of corporate fixed-income securities versus ... Read Answer >>
  5. How are arm's-length transactions determined by law?

    Determine if transactions are conducted at arm's length by checking if the parties to a contract are independent and transact ... Read Answer >>
  6. What does it mean when my broker says that shares are for auction?

    An auction market is one in which stock buyers enter competitive bids and stock sellers enter competitive offers at the same ... Read Answer >>
Hot Definitions
  1. Bond Ladder

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

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

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

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

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
Trading Center