One-Way Market

What Is a One-Way Market?

A one-way market, or one-sided market, is a market for a security where market makers just quote either the bid or the ask price. One-way markets emerge when the market is moving strongly in a certain bearing.

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

How One-Way Markets Work

One-way markets happen when there are just likely buyers or sellers keen on a specific security, yet all the same not both. Albeit these situations are moderately uncommon, they at times happen comparable to the initial public offerings (IPOs) of long awaited companies.

All the more generally, one-way markets are associated with periods of extreme excitement or fear, for example, the dotcom bubble of the late 1990s and its subsequent collapse.

In the approach the dotcom bubble, buyers immeasurably dwarfed sellers, as essentially all stocks were rising quickly no matter what their fundamentals. When the bubble burst, the situation switched, with nearly everyone wishing to sell and not very many able to buy.

The term one-way market is some of the time utilized in a more broad sense, to allude to a market that is strongly heading in a specific course. By this definition, the website bubble was a one-way market prior to its sudden collapse.

One-way markets can present special risks for market makers, who are committed to hold shares in a security to give liquidity for buyers and sellers.

At the point when buyers surpass sellers, a market maker could create quick gains by selling their pursued inventory at ever-higher prices. Notwithstanding, on the off chance that the momentum turns and investors sell their shares at steadily diminishing prices, the market maker may be left with a heap of practically worthless shares.

To relieve against this risk, market makers generally charge a higher bid-ask spread while dealing in one-way markets.

Features

• A one-way market, or 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-way markets by charging a more extensive spread between their bid and ask prices.
• A common illustration of a one-way 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 situations where fear has assumed control over the market, for example, when an asset bubble collapses.