Active market definition
/What is an Active Market?
An active market is a market that routinely experiences high transaction volumes. There is usually a small spread between bid and ask prices, since there are so many buyers and sellers who are interested in trading. Some investors only want to buy securities and other assets that are traded in an active market, because their investments can be easily liquidated and doing so has only a minor impact on prices.
Characteristics of an Active Market
Active markets typically share the same characteristics. First, their trading volume, in terms of separate transactions, is quite high. Second, these transactions occur with great frequency, usually many times per day. This means that prices are continually being adjusted based on supply and demand. Third, and because of the trading frequency, there tends to be a narrow bid-ask spread, where buyers are constantly searching for lower prices. Fourth, and again because of the transaction volume, there tends to be a high degree of liquidity, where buyers and sellers can easily conduct transactions without their activities individually having much of an impact on prices. Finally, there is a great deal of information about the products being bought and sold in an active market, so that no one can gain an advantage based on information that is not available to anyone else.