Auction Market Definition
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What Is the Definition of Auction Market?
An auction market is a market in which participants bid for assets, usually financial securities. The key feature of an auction market is that prices are determined by the forces of supply and demand, rather than by a single market maker.
Auction markets are used for a variety of assets, including stocks, bonds Treasury bills, and commodities.
In an auction market, buyers and sellers submit bids and offer at the same time. The price of a stock represents the highest price a buyer is willing to pay and the lowest price a seller is willing to accept.
Auction Market Process
A trade is completed when the bid and ask prices match. This is different from an over-the-counter (OTC) market, where trades are negotiated. Auctioning is also used in initial public offerings (IPOs). The type of auction used in IPOs is called a Dutch auction. Auction is used on different stock exchanges around the world.
Auction markets have traded using open outcry in the past, where buyers and sellers would yell out prices on the trading floor. Now, trades in an auction market are matched at the same time and immediately and are done?electronically.?If the bid can't be matched to an offer price, the order will stay pending until a corresponding bid and ask can be matched. In exchange, the process happens with many buyers and sellers spread out.
Difference Between Auction and Dealers Market
An auction market is one in which buyers and sellers trade directly with each other, without the use of a middleman. In a dealer market, on the other hand, a middleman known as a market maker is used to buy and sell securities in order to create liquidity in the market. Market makers are typically referred to as brokers, and they make their profit from the bid-ask spread.
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Bid-Ask Spread in Auction Price
The incentive for brokers to create?liquidity?in the market comes from the profits they make from the bid-ask spread. The bid-ask spread happens when the bid is higher than the ask, and the broker makes money from the difference.
What are Double Auction Markets?
An auction market, which is also called a double auction market, permits buyers and sellers to enter prices that they are willing to accept or pay. If a buyer's bid price matches a seller's ask price, the trade is carried out at that price. No trades will occur if there are no matches.
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Supported Brokers are IIFL, 5paisa, Angel broking, Kotak Securities
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Disclaimer: This article is for information only and should not be considered as a recommendation to buy or sell any stocks.