What is a Thin Market?

A thin market is a situation in which there are few participants in a stock market who are willing to buy or sell a security. In this case, there can be a substantial spread between bid and ask prices, because there are few buyers and sellers participating in the market. For the same reason, the introduction of large buy or sell orders can dramatically impact the price of the security. Consequently, the presence of a thin market is associated with a high degree of price volatility. Investors generally try to avoid securities with thin markets, since they may have to buy securities at inflated prices and may see a sharp price drop when they later offer to sell the securities.