Definition
Auction Market
An auction market is a trading mechanism in which buy and sell orders are accumulated and matched at a single clearing price that maximises executable volume, rather than continuously matching as orders arrive.
Indian exchanges use call-auction mechanisms for the pre-open session, where orders are collected over a window and a single equilibrium opening price is determined. This concentrates liquidity and produces a fairer opening price than the first continuous trade would.
Call auctions are also used for illiquid scrips through the periodic call auction framework, which batches trading into short auctions to reduce manipulation in thin stocks. The contrast is the continuous order-driven market that operates for the rest of the day, where each incoming order matches against resting orders immediately.
Related terms
- Pre-Open SessionThe pre-open session is a short window before regular trading begins, during which orders are collected and a single opening price is established through a call auction to absorb overnight information.
- Auction SettlementAuction settlement is the exchange process of buying in shares to resolve a short delivery, where the clearing corporation auctions the failed quantity and delivers the purchased shares to the affected buyer.
- Periodic Call AuctionA periodic call auction is a trading mechanism for illiquid securities in which orders are batched and matched at a single price in short, repeated auction sessions through the day instead of continuous trading.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.