Thin market

A description of liquidity rather than of direction. What is thin is the depth available: the quantity resting on each side of the book at and around the current price. When that quantity is small, an order of ordinary size consumes several levels before it is filled, so the fill arrives at an average price some distance from the one on the screen and the quote left behind has moved. Volume and depth are not the same thing, and a market can print a respectable turnover while remaining thin at any single moment.

The conditions recur on a schedule that is largely known in advance. Depth falls at the daily changeover between the main trading centres, through public holidays in the region that normally provides the price, in the minutes around a scheduled release when quoting firms stand back, and in instruments whose underlying exchange is closed while a contract on it continues to be quoted. Depth also falls suddenly and without a calendar during a disorderly move, which is when its absence matters most.

The frequent error is treating thin as quiet. They are opposite in effect: a thin market is one in which a given order moves the price further, so slippage on execution is larger, stops are reached that a deeper market would have absorbed, and the same news produces a bigger print. Practitioners disagree about whether thinness can be measured usefully in advance, since the published depth of a quote is not a commitment to trade the whole of it and can be withdrawn in the moment it is taken.