One-Sided Market

What Is a One-Sided Market?

A one-sided, or one-way market is a market that happens when market makers just quote one of either the bid or the ask price. One-way markets emerge when the market is moving strongly in a certain course.

Paradoxically, a two-sided market is one where both the bid and ask are quoted.

Grasping One-Sided Markets

Market makers are required to keep a two-sided market where both a bid and an ask price are displayed to investors. This is known as a bid-ask spread. Be that as it may, assuming that there is great interest in a certain stock and the market maker is the only one selling, the market maker is in a position to have the option to sell the shares at an extremely high cost, and in this way just display one offer. This makes a one-sided market.

One-sided markets happen when there are just expected buyers or sellers interested in a specific security, yet all the same not both. Albeit these circumstances are somewhat uncommon, they at times happen according to the initial public offerings (IPOs) of long awaited companies.

One-sided markets may likewise allude to circumstances in which the whole market is strongly heading in a certain course. For instance, say a drug company has been investigating remedies for malignant growth and following quite a while of tests and trials finds a cutting edge that prompts the creation and patent of a disease immunization that is almost 100 percent effective. This progressive discovery will save a huge number of lives right away and on the grounds that the development is patented, this specific drug company will be the main provider.

Essentially every investor needs to buy shares of this company and no one needs to sell. The people or brokerage houses that act as market makers for the drug company have an obligation to work with trades and hence act as sellers. As needs be, they just present a bid price for the shares in their inventory.

Ramifications of One-Sided Market

One-sided markets can be unstable and extremely upsetting for the financial institutions acting as market makers who are committed to work with trading specifically stocks, even on the off chance that doing so is less savvy or more badly arranged.

Due to the large number of units inside their inventory, market makers accept high levels of risk, and are compensated for that risk of holding assets. The risk they face is a potential decline in the value of a security or asset after it has been purchased from a seller and before it is sold to a buyer. These brokerage houses "make a market" by buying and selling securities of a defined set of companies to broker-dealer firms that are individuals from that exchange.

While one-sided markets might be unstable and uncertain, the drug company model likewise shows the way that one-sided markets can be very profitable for market makers. This influences investors since when a market maker can sell shares at exceptionally high costs, that means investors will probably pay an extremely high price too.

Highlights

• A one-sided market is a market for a security where market makers just quote either the bid or the ask price.
• Market makers relieve the risk of one-sided markets by charging a more extensive spread between their bid and ask prices.
• A common illustration of a one-sided market is when market makers are offering shares in an IPO for which there is strong investor demand.
• One-way markets can likewise emerge in circumstances where fear has assumed control over the market, for example, when an asset bubble breakdowns.