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What is a Call Auction?
A call auction is a trading method where buy and sell orders are collected over a period of time and then executed simultaneously at a single clearing price that maximizes traded volume.
Definition
A call auction is a market mechanism in which securities orders are pooled and matched at a predetermined time to establish a single transaction price based on supply and demand.
Key Takeaways
- Orders accumulate before execution.
- A single clearing price is set for all matched trades.
- Reduces volatility and improves price discovery.
- Common in opening and closing sessions of stock exchanges.
Understanding Call Auctions
In a call auction, traders submit buy and sell orders during a collection window. At the designated auction time, the exchange determines a price where the maximum number of shares can be traded. This price becomes the clearing price, and all matched orders execute at that price.
Call auctions are used to:
- Improve market efficiency
- Minimize volatility during market open/close
- Increase liquidity for thinly traded securities
Many global stock exchanges, including NYSE and NASDAQ, use call auctions for their opening and closing auctions.
Real-World Example
During the opening auction on the NYSE, traders submit orders before the market opens. The exchange determines a single opening price that matches the highest volume of shares.
Importance in Business or Economics
- Enhances fair price discovery.
- Prevents sharp price swings.
- Useful for illiquid markets.
- Supports efficient market functioning.
Types or Variations
- Opening Call Auction
- Closing Call Auction
- Intraday Call Auction
- Batch Auctions
Related Terms
- Continuous Trading
- Clearing Price
- Limit Orders
- Order Book
Sources and Further Reading
- NASDAQ Market Operations
- NYSE Opening and Closing Auctions
- Investopedia – Call Auction: https://www.investopedia.com/terms/c/call-auction.asp
Quick Reference
- Price: Single clearing price.
- Timing: Pre-set auction window.
- Use Case: Opening/closing trades.
FAQs
Why use a call auction instead of continuous trading?
To concentrate liquidity and stabilize pricing.
Do all orders get filled?
No—only orders matching at the clearing price.
When are call auctions used most?
Market open, market close, and low-liquidity conditions.
