What is a One-sided market?

When you hear about the stock market making headlines, you wonder about the entire mechanics of the “market” that keeps moving. Traditionally, It is driven by sentiments and the economy and this is how a one-sided market works, too.

The One-sided market or one-way market is when market makers can quote a single price instead of quoting both the asking price and bid price (two-way market). The Bid price is the highest price that a buyer is willing to pay for the goods. Ask price is the lowest price that a seller will accept for a security. The term Spread defines the difference between the Ask price and the Bid price.

How does the One-sided market work?

The One-sided market is wherein the market is heading in a single direction, sometimes up, otherwise down. A few points that impact and drive the market include:

• The Economy

  Whenever the economy is moving higher and people have money to invest, they infuse money which leads to an increase in demand. With the shift in demand, everyone starts buying and the market starts moving in a single direction.

• Monopoly seller

  Another situation may be when there is a single seller in the market. E.g., if Company A is a single seller of COVID vaccines, every investor would be willing to buy its shares without a thought of selling them again.

• Sentiments

  The sentiments of people have a major impact. E.g. In early 2020, with the outset of COVID cases, the market witnessed an alarming downfall due to panic in their minds and hearts. Many people started selling their shares and when things started to return to some form of normalcy, the market witnessed an increasing trend and people started buying.

• New Issue

  An example of high investor demand may be a New issue or enter/bonds/different-types-of-bonds IPO where buying increases to realize higher profits.

Implications of One-sided market

The one-way market seems to be both captivating and stressful. It is a win-win situation when the market maker is the only seller and it is in a position to derive the price. Conversely, it may be stressful for market makers which may also lead to volatility with an added risk as it is moving in a single direction. It is also stressful since the market maker is bound to sell even if it is an unprofitable, inconvenient, and costly affair. It can also be risky due to possible chances of a decline in the value of a security that has been bought but not sold yet.

Speaking about the Economy’s perspective, a one-sided market gives a negative impression. Whenever a market is going in a single direction, it creates a bubble, and the larger the bubble, the more is the distraction. E.g. The honorable PM’s dream of becoming a $5 trillion economy by 2025 has given an upward trend to the market and at the same time, it is creating a bubble and it’s inconclusive about the impact as before every downfall, there is an upward trend.