In Finance, what is a Slow Market?

The term slow market is used to refer to a couple of different market situations. One has to do with the amount of trading that is taking place on a market at any given time, while the other has to do with the speed that individual trades are processed, once they are placed by brokers. Both situations are indications of a market that is undergoing some sort of shift, sometimes in anticipation of an upcoming event, or in the aftermath of an unexpected event that affected the trading behaviors of a large number of investors.

One type of slow market involves a decreased amount of trading volume. In many cases, the trading that is conducted will focus around the purchase and sale of securities that carry a relatively low level of risk. While there are several reasons why this sort of low volume trading may occur, the reaction to investors regarding some upcoming event is often the motivation for the lack of activity. For example, if a highly anticipated initial public offering is scheduled to happen in the near future, investors may refrain from significant activity as they wait to see out that IPO will impact the marketplace in general.

Another common usage of the term slow market has to do with the speed with which transactions occur in the marketplace. When there is some type of delay between the placing of the order and the actual execution, investors are likely to consider the market as undergoing a slow period. This use of the term has become more common as exchanges have increasingly allowed electronic trading as well as trading on the exchange floor. It is important to note that the delay does not have to be more than ten seconds or so in order to be considered a slow market. In situations where every second counts in terms of earning the best return, those extra ten seconds can be crucial.

Just about every exchange will go through some type of slow market period from time to time. The period may last a few hours, or dominate an entire trading day. Less frequently, the slow period may last for several successive trading days. On rare occasions, the slow market may remain in place for months. This is particularly true if upcoming events such as political elections are anticipated to have a significant impact on the marketplace, since many investors will adopt a wait and see approach and engage in relatively little trading until the results of the election are announced.