CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.1% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

What is a frictionless market?

Frictionless market

An ideal trading environment in which there are no costs or other restraints on transactions. A frictionless market is a theoretical concept.

Where have you heard about frictionless markets?

Bill Gates first coined the term ‘friction-free capitalism’ to predict the impact the internet would have in improving the effieciency of market processes. Although the internet has contributed to reducing friction in many markets, a true ‘frictionless’ market remains a theoretical concept.

What you need to know about a frictionless market.

In a frictionless market, there are no costs or other restraints to transactions. According to economic theory, ‘friction’, in the form of restrictive regulations, imperfect information and cost, is a barrier to efficient financial markets.

Globalisation and the internet have promoted a more competitive and frictionless market. Discount brokers with low commissions have increased accessibility and reduced barriers to trading. But as there will always be certain costs and constraints, a truly frictionless market does not exist.

Find out more about frictionless markets.

The Black-Scholes model assumes a frictionless market. Find out more about this price variation model in our definition.

Related Terms

Latest video

Latest Articles

View all articles

Still looking for a broker you can trust?

Join the 580.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading