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. Blue Chip

    A nationally recognized, well-established and financially sound ...
  2. Boom

    A period of time during which sales of a product or business ...
  3. Demand

    An economic principle that describes a consumer's desire and ...
  4. Thin Market

    A market with a low number of buyers and sellers. Since few transactions ...
  5. Liquidity

    1. The degree to which an asset or security can be bought or ...
  6. Bid-Ask Spread

    The amount by which the ask price exceeds the bid. This is essentially ...
Related Articles
  1. Economics

    Introduction To Supply And Demand

    Find out all about supply and demand and how it relates to your daily purchases.
  2. Investing Basics

    The Roles Of Traders And Investors In The Marketplace

    Discover how these two groups work together to keep the market functioning properly.
  3. Forex Education

    4 Factors That Shape Market Trends

    Trends allow traders and investors to capture profits. Find out what's behind them.
  4. Economics

    What Determines Gas Prices?

    Gas prices are influenced by more than supply and demand. Find out what determines the price you pay at the pump.
  5. Mutual Funds & ETFs

    Strategies For Determining The Market's True Worth

    Learn the strengths and weaknesses of passive and active management when trying to uncover the overall market's worth.
  6. Investing Basics

    Explaining Market Value of Equity

    Market value of equity is the total value of all the outstanding stock as measured in the stock market at a particular time.
  7. Investing Basics

    What is Spread?

    Spread has several slightly different meanings depending on the context. Generally, spread refers to the difference between two comparable measures.
  8. Economics

    What is the Breakeven Point?

    In general, when gains or revenue earned equals the money spent to earn the gains or revenue, you’ve hit the breakeven point.
  9. Stock Analysis

    What is the Price-to-Sales Ratio?

    The price-to-sales ratio is an indicator of the value placed on each dollar of a company’s sales or revenues.
  10. Investing Basics

    What is Treasury Stock?

    Treasury stock is a company’s own stock that it holds in its treasury for later use.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center