Sucker's Market

It seems that small markets lacking depth are often sucker's markets. That is, the prices that are settled on tend to wind up being wildly inconsistent with the evaluations of larger markets. More importantly, it is disturbingly easy to game a low depth market.

Assume that a market has say a trading volume of 5. Of the 5, 2 have anomalous trades that bring the last done average down. With 40% of the market selling at anomalously low prices, other sellers are obliged to follow. Of course, it would be easy to try selling at a higher price and hoping that demand will force others to buy at what's a fair market price. Unfortunately, most will not be thrilled by the prospect of paying more than they have to. Even worse, it is also likely that a low volume market has a small pool of demand, which means hoping and praying will not do a lot of good. More importantly, the trades may be phantom trades, whereby the same trader buys and sells the exact same item on the market. That will significantly change the perceptions of other potential suckers who actually check the history of the small market. The converse can apply, where buyers (who usually urgently need the item) can be convinced that prices have gone up.

Conversely, that is a lot harder to pull off on a larger market. Someone trying to do the same thing would require immense resources. Even if they made their gains, the high volumes traded will quickly equalize the anomaly. Of course, due to market imperfections, it is also possible for anomalous trades and unusual averages. Yet, a larger market is more able to compensate for such issues compared to a small one.