Tight Market

AAA

DEFINITION of 'Tight Market'

A market with narrow bid-ask spreads. A tight market for a security or commodity is characterized by abundant liquidity and frenetic trading activity. Intense price competition on both the buyers' and sellers' sides leads to tight spreads, the hallmark of a tight market.


The term "tight market" may also refer to a physical market where supply is constrained in the face of high demand, resulting in higher prices for the product or service.

INVESTOPEDIA EXPLAINS 'Tight Market'

Most blue-chips have tight markets, since there is plenty of interest from buyers and sellers at any point in time. Occasionally, however, tight market conditions may be disrupted by a sudden change in the market environment (due to a geopolitical development, for example) or the occurrence of a stock-specific event (such as an earnings warning). When this occurs, bid-ask spreads may widen as liquidity dries up, until there is more clarity to the situation. Tight market conditions will generally return once the situation has been resolved and normalcy has been restored.


A physical tight market may occur due to a temporary imbalance of supply and demand, or a more lasting change in fundamentals. An example of the former would be the market for a hot technology product in the first few days after its launch. An example of a longer-lasting tight market would be the downtown office rental market in a major city during a prolonged economic boom.

RELATED TERMS
  1. Price Discovery

    A method of determining the price for a specific commodity or ...
  2. Supply

    A fundamental economic concept that describes the total amount ...
  3. Fundamentals

    The qualitative and quantitative information that contributes ...
  4. Supply Shock

    An unexpected event that changes the supply of a product or commodity, ...
  5. Bid-Ask Spread

    The amount by which the ask price exceeds the bid. This is essentially ...
  6. Blue Chip

    A nationally recognized, well-established and financially sound ...
Related Articles
  1. Introduction To Supply And Demand
    Economics

    Introduction To Supply And Demand

  2. The Roles Of Traders And Investors In ...
    Investing Basics

    The Roles Of Traders And Investors In ...

  3. 4 Factors That Shape Market Trends
    Forex Education

    4 Factors That Shape Market Trends

  4. What Determines Gas Prices?
    Economics

    What Determines Gas Prices?

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center