What Is a One-Way Market?

A one-way market is any financial market that is currently being dominated by greater numbers of buyers than sellers, or vice versa. Rather than being some semblance of balance between the bids and asks associated with the marketplace, either bids or asks account for the majority of active trading that is taking place. Bids have to do with the prices that investors are willing to pay to purchase assets, while asks have to do with the prices that sellers are willing to accept for assets offered in the marketplace. The term is also sometimes used to describe conditions surrounding a particular investment, with the market currently providing a preponderance of bids or asks, but not both.

As it relates to trading activity within the marketplace, a one-way market typically involves the quotation of firm prices for only one type of trade. For example, a market currently undergoing this type of phenomenon may involve traders being able to quote firm prices for bids only, but not be in a position to quite firm pricing for asks. This is different from what is known as a two-way market, in which the ability to obtain firm prices for both bids and asks is common. The lack of balance between buying and selling activity in a one-way market can create significant issues that may undermine the market if some type of corrective action is not taken.

The one-way market phenomenon does not have to apply to an entire market. It is also possible for a given asset to suddenly generate a number of bids with relatively few, if any, asks. Depending on the nature of the movement, this could cause the market price of the asset to soar, or lead to the price dropping quickly. With this scenario, investors who see potential in the stock that has suddenly dropped for lack of interest in purchases may choose to buy up those shares, hold them for a time, then sell them once the shares begin to recover and command a higher market price.

There are even markets around the world that intentionally operate with a one-way market strategy. When this is the case, domestic investors have the opportunity to participate in initial public offerings (IPOs) issued by domestic companies, but do not have the privilege of participating in subsequent offerings. In order to secure any additional shares, those investors must wait until any shares not sold as part of an offering are subsequently made available in the market at large.