Negotiated Market

Categories: Trading

A flea market would be a negotiated market. The buyer and the seller work out the price on their own...there isn't a third party involved who oversees the sale.

The person in the booth selling weird medieval paraphernalia has a broadsword for sale for $500 that was allegedly used on the set of one of the Lord of the Ring movies. You think that's probably a load of hype, but the sword is cool, so you offer $400. Eventually, you settle on $450. A negotiated market.

Many stock markets are negotiated markets. The NASDAQ, for instance. Buyers post bids. Sellers post asks. The market provides a system for them to find each other, but doesn't intervene directly.

Meanwhile, the NYSE works on a different system. It operates as an open outcry auction. Stocks have market makers who facilitate transactions when liquidity is low...there's a third party involved between the buyer and the seller shepherding the transactions.

Related or Semi-related Video

Finance: What is an Auction Market?13 Views

00:00

Finance a la shmoop... what is an auction market.. next up on the block [Man speaking on stage]

00:07

we've got stock in the company comb Depot....

00:18

okay yeah so the New York

00:20

Stock Exchange is an auction market and you have no idea how much caffeine I had [Man holding a monster energy drink]

00:24

to have to get that right which means that the prices on the new york stock

00:28

exchange happen during a bidding process we're matching offers get you know [People frantically rushing to bid for stocks]

00:34

matched... buyers and sellers buy and sell at the

00:40

same time so in essence two transactions are happening at once the opposite of

00:45

this sort of market is the over the counter or OTC market where dealers are

00:50

the ones holding all the cards and they ultimately determine the price by [Dealer with the cards]

00:54

creating a spread from where they're willing to sell your shares and what

00:58

price they'll pay to buy your shares but in an OTC market well you don't get to [Dogs running side by side]

01:03

feel like you're watching the last leg of a greyhound race so you don't get all

01:06

my caffeinated auction talk there which is kind of cool we like that, right..right?

Find other enlightening terms in Shmoop Finance Genius Bar(f)