Locked Market

Welcome to your in-depth glossar guide, where we aim to define, decode and demystify often-used jargon in the trading world. Today, we're digging deep into the term "Locked Market".

The Definition of "Locked Market"

A "Locked Market" is a trading scenario in the securities market where the bid price of a security is exactly equal to the ask price. This usually happens when two exchanging venues (like two different exchanges) show the same price for a security without any profitable arbitrage opportunity.

Understanding Locked Market

The term "Locked Market" might sound puzzling if you're new to trading, but it's quite simple. Imagine a scenario where the "Bid" (the highest price a buyer is willing to pay for a security) and the "Ask" (the lowest price a seller is offering a security for) coincide. When these prices match, we have what is referred to as a "Locked Market".

Implications of a Locked Market

A "Locked Market" could imply numerous things. It might suggest that the market is highly competitive or that the market is momentarily volatile. In some cases, it can also be a sign of slow trading activity where no change in price is seen for a brief time.

The Role of Regulators in a Locked Market

Regulators of the securities markets often have rules in place to prevent the market from getting "Locked". Because a "Locked Market" can disrupt normal trading and create inefficiencies, regulators usually have regulations to prevent this situation.

Locked Market Vs. Crossed Market

It's easy to mistake a "Locked Market" for a Crossed Market, but they're not the same. In a Crossed Market, the bid price for a security is higher than the ask price. This is typically a fleeting situation and is corrected quickly by market forces.

Remember to keep exploring, deepening your understanding, and expanding your trading vocabulary. Stay educated, stay informed and keep trading!