What is a Wide Open
A wide open, or wide spread, occurs when there is a scarcity of competitive bid and ask prices or when trading has been suspended.
BREAKING DOWN Wide Open
A wide open describes the gap between a stock's bid price and the ask price, also known as the spread, at the commencement of trading. A wide open can arise because market makers and participants haven't yet submitted their bid and ask prices to the market, leaving very few (uncompetitive) orders to appear as the lowest ask and highest bid price.
Many over-the-counter bulletin board (OTCBB) as well as pink sheet stocks (penny stocks) routinely feature wide opens, as well as wider bid-ask spreads throughout the trading day. OTCBB stocks trade on an electronic trading service provided by the National Association of Securities Dealers, which offers traders and investors up-to-the-minute quotes, last-sale prices and volume information for equity securities traded over the counter. These differ from Nasdaq and New York Stock Exchange listings as there are no listing requirements. Pink sheet stocks, which also refer to OTC trades, reflect the so-called pink sheets traditionally used by traders. Pink sheets are daily publications compiled by the National Quotation Bureau with the bid and ask prices of OTC stocks.
Wide opens and higher spreads can make it difficult for momentum traders and others to gauge market direction.
Comparing Wide Open, Wide Market and Wide Basis
In financial terminology, the adjective “wide” is contrasted with “narrow,” which describes the opposite set of circumstances. The term wide market is used to describe a market with considerable profit margins, and is the opposite of a thin, or narrow, market, which describes a market with a small spread between the bid and ask prices. In a narrow market, there is a lot of trading activity. A narrow market can also be referred to as a tight market.
The term wide basis relates to conditions of futures markets. A wide basis indicates that the spot price of underlying commodities is far from the futures price. A wide basis suggests that supply is high and demand is low. Investors in futures contracts can look at a wide basis as a signal for which actions they should take in the futures market. The spot price, or current price, and futures price should join at a futures contract’s maturity. In the case that it does not, there is an opportunity for arbitrage, an exploitative practice which generally takes advantage of a market inefficiency.