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.

BREAKING DOWN '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. Bid-Ask Spread

    The amount by which the ask price exceeds the bid. This is essentially ...
  2. Bid And Asked

    A two-way price quotation that indicates the best price at which ...
  3. Tight Money

    A situation in which money or loans are very difficult to obtain ...
  4. Right Hand Side - RHS

    The ask or offer price of a foreign exchange rate. A quote for ...
  5. Dear Money

    A situation in which money or loans are very difficult to obtain ...
  6. Bid

    1. An offer made by an investor, a trader or a dealer to buy ...
Related Articles
  1. Investing

    What's Tight Monetary Policy?

    A tight monetary policy constricts spending and curbs inflation.
  2. Investing

    How To Calculate The Bid-Ask Spread

    It's very important for every investor to learn how to calculate the bid-ask spread and factor this figure when making investment decisions.
  3. Investing

    Understanding Liquidity Risk

    Learn about the two types of liquidity risk: funding liquidity risk and market liquidity risk.
  4. Investing

    Understanding Liquidity Risk

    Make sure that your trades are safe by learning how to measure the liquidity risk.
  5. Trading

    The Basics Of The Bid-Ask Spread

    The bid-ask spread is essentially a negotiation in progress. To be successful, traders must be willing to take a stand and walk away in the bid-ask process through limit orders.
  6. Trading

    Trading Calendar Spreads In Grain Markets

    Futures investors flock to spreads because they hold true to fundamental market factors.
  7. Investing

    Penny Stocks

    Learn more about this cheap stock and how its high risk nature, large bid-ask spreads and lack of liquidity may not make it the most wise investment.
  8. Trading

    Retail FX Spreads: Do They Even Matter?

    Learn how retail forex spreads affect your ability to trade currencies.
  9. Investing

    2 ETFs That Could Benefit from a Dovish Fed (XLU)

    With odds of a Fed rate hike in 2016 seeming to move lower every week, these two ETFs might have potential.
RELATED FAQS
  1. What types of stocks have a small difference between bid and ask prices?

    Learn more about bid-ask spreads and why stocks with high levels of liquidity and low levels of volatility usually have narrow ... Read Answer >>
  2. What does the variance between the bid and ask price of a stock mean?

    Find out how stocks are traded in the market, why the bid and ask prices are different and why the bid-ask spread is smallest ... Read Answer >>
  3. What are the determinants of a stock's bid-ask spread?

    Stock exchanges are set up to assist brokers and other specialists in coordinating bid and ask prices. The bid price is the ... Read Answer >>
  4. What's the difference between bid-ask spread and bid-ask bounce?

    Understand the difference between the bid-ask spread that determines the buy or sell price for a stock and a bid-ask bounce, ... Read Answer >>
  5. What types of stocks have a large difference between bid and ask prices?

    Find out which factors influence bid-ask spread width. Learn why some stocks have large spreads between bid and ask prices, ... Read Answer >>
  6. What number of shares determines adequate liquidity for a stock?

    Liquidity refers to how easy it is to buy and sell shares without seeing a change in price. If, for example, you bought stock ... Read Answer >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center