What it is:
The opposite of a liquid market, a thin market is characterized by a small number of participants and high price volatility.
How it works (Example):
The small number of buyers and sellers in a thin market results in low transaction volume and relative illiquidity. Though low in volume, transactions tend to be larger. For this reason, price movements in a thin market are inherently more volatile. In addition, there is a generally wider spread between asset bid and ask prices as market actors attempt to profit from fewer transactions. A thin market should not be confused with a liquid market, which is characterized by a high volume of buyers and sellers, high liquidity, and relatively lower price volatility.