What is a Call Market?
In a call market, buy and sell orders are grouped together and then executed at specific times, rather than executed one by one continuously.
How Does a Call Market Work?
Let's assume that the following buy orders for Company XYZ stock are received:
Buy 1,000 shares @ $4.25
Buy 500 shares @ $4.00
Buy 700 shares @ $4.50
Buy 500 shares @ $4.25
Sell 1,000 shares @ $4.25
Sell 500 shares @ $4.00
Sell 700 shares @ $4.50
Sell 500 shares @ $4.25
In a call market, the buy orders are grouped together and executed at a price and time that will clear most of those orders. In this case, that price might be $4.25. Note that even though some of the parties were willing to buy or sell for $4.00, the price that clears most of the transactions is $4.25, and that is the price at which the exchange's market analyst executes these trades in a call market.
A call market is different from an auction market, whereby buyers and sellers trade continuously.
Why Does a Call Market Matter?
Call markets are helpful in illiquid markets or markets where there are few buyers, sellers, and shares to trade. As such, the buyers and sellers in a call market do not have the final say on what the final price is in their trades. This differs from an auction market, whereby the final price is more directly determined by market forces.
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