Reviewed by Oct 05, 2020| Updated on
One-to-many refers to one of the trading platforms or a market in which all the buyers and the sellers carry out transactions with a single person operating the market. In a regular exchange, operators match buy orders with sell orders. In a one-to-many platform, the operator purchases stocks from the sellers and then resells them to the buyers. All the bids and offers if any, will be on the platform of the market operator.
The operating platform of one-to-many is used less in comparison to the method of many-to-many. The law in place in several countries does not recognise and provide for a one-to-many market.
The many-to-many platform is a standard adopted across nations. For example, the Commodity Exchange Act does not allow for a one-to-many market as an official trading platform.
The many-to-many platform, generally, used for trading in most securities, commodities, and derivatives include currencies and bonds as well. In a many-to-many market, many sellers and buyers get together on a stock exchange to place their orders. The exchange, in turn, charges them transaction fees for the buying and selling services.
However, the platform of one-to-many may suit a certain type of trade. For instance, in an auction transaction for assets under specific laws, a one-to-many platform is apt to carry out the deal. The auction may be for work of art, paintings, sculptures, or souvenirs of a legend. These auctions have a limited interest.
In an auction, the auctioneer conducts the auction but does buy the assets. Hence, all interest parties place their bids with the auctioneer. Only when the auctioneer gets the reserve price they had set, they proceed with the actual auction. Auction is an example of how a small group carries out a transaction with the help of a single operator.
A one-to-many market can exist as permitted by the law of the land. Earlier, in the 1990s, a trading platform in oil called Enron Online was allowed. The platform was for gas and power business; however, it was unregulated. The platform was shut for various malpractices, such as manipulation, false reporting and other reasons.
The risk in a one-to-many market is high than a regular market. The regulations and procedures, checks and balances are less and thus pose high risks.