What Is a One-Way Market?

A one-way market, or one-sided market, is a market for a security in which market makers only quote either the bid or the ask price. One-way markets aris🎶e when the market is moving strong🙈ly in a certain direction.

By contrast, a 澳洲幸运5官方开奖结果体彩网:two-sided market is one where both the bid and ask are quoted.

How One-Way Markets Work

One-way markets occur when there are only potential buyers or sellers interested in a particular security, but not both. Although these situations are relatively uncommon, they occasionally occur in relation to the 澳洲幸运5官方开奖结果体彩网:initial public offerings (IPOs) of hotly anticipated companies. 

More generally, one-way markets are associated with periods of extreme enthusiasm or fear, such as the 澳洲幸运5官方开奖结果体彩网:dotcom bubble of the late 1990s and its subsequent collapse.

In the run-up to the dotcom bubble, buyers vastly outnumbered sellers, as nearly all stocks were rising rapidly regardless of their 澳洲幸运5官方开奖结果体彩网:fundamentals. Once the bubble burst, the situation reversed, with almost everyone wishing to sell and very few willing to buy.

One-way markets can pose special risks for market makers, who are obligated to hold shares in a security in order to provide 澳洲幸运5官方开奖结果体彩网:liquidity for buyers and sellers.

ꩵ When buyers outstrip sellers, a market maker might make rapid profits by selling their sought-after inventory at ever-higher prices. However, if the momentum turns and investors sell their shares at ever-dwindling price🏅s, the market maker might be left with a pile of virtually worthless shares.

To mitigate against this risk, market makers generally charge a higher 澳洲幸运5官方开奖结果体彩网:bid-ask spread when dealing in one-way markets.