Call Market

Call Market - is an exchange or a place where exchange is made on a specific period of time and not happen constantly. All transactions - securities buy, sell - are made at one time hence it is possible to set one price for above. Call markets most often occur if we are dealing with a few traders and a few traded transactions. The traders are never sure what the price are going to be "called". It is concluded based on orders reported by the buyers and sellers.

An example of Call market

Let's assume that we have below transactions in order book.

• Buy 1500 shares at 10.00 $ Buy700 shares at $12.00 Buy 750 shares at 11.00 $. Sell 750 shares 11.50 $ Sell 700 shares 12.50 $ Sell 1500 shares at 10.00 $.

The price set for all transaction would be 10.00 $, and the price would be called a call price, as the ideal for the moment. It does not matter that some parties are willing to pay 12.00 $ and others are willing to get ride of some of theirs assets for more than 10.00 $.

Call Market vs Continuous Trading Market

On call market All investors are called to be present at the same place at the same time. This time on a market is called trading session. Those circumstances make market very fluid and. When "call time" passess beyond the market changes all around and it become immovable. Call market can work in rotation as well. Operating in this model all transaction may be called in one turn. And if there are "turns" - so called - sessions, as many sessions as possible will be appealed. Call market is not only used for a small markets but also in some countries governments sell for example bonds or notes. This model can be used also for securities which are not very active (for example Euronext Paris Bourse). On call markets trades are being done as orders. There is one price set based on buyers and sellers powers. All orders are being written down and based on it there is one price chosen. This decision is also made to maximize the opportunity from transactions. Within Continuous Trading Market trades can be constantly trade as market is open all the time. Whenever seller or buyer wants to make a deal, at anytime the opposite will be matched (seller - buyer). The most popular continuous trading markets are currency exchange markets, stock exchange or derivatives. There are some good side and a bad ones in both type of markets. When it comes to advantages - in call market the biggest one is the market liquidity because all clients are present at the market at the same time and at the same place. What advantage the continuous market has? The possibility to buy or sell at any time the client is interested in transaction, there is no limit.

Advantages of Call Market

A call market provides several advantages to traders. *It allows participants to buy and sell securities at the same price. This eliminates the need to negotiate prices or wait for the right price to be set. *It also reduces the risk of market manipulation, since it is not possible to know what the price is going to be until all orders have been reported. *Furthermore, call markets provide a more efficient and transparent way of trading, since all orders are reported and made public. *Finally, call markets can help reduce transaction costs, since participants can easily see and compare prices.

Limitations of Call Market

Call Markets have many limitations which can impede efficient execution of trades. These include:

• Lack of transparency - since the price is determined by the buyers and sellers, it is difficult to know what the price will be in advance. This can be especially risky for traders who are not familiar with the market dynamics.
• Low liquidity - since call markets are not continuous, there can be times when there is not enough liquidity to complete a trade. This can be especially problematic for large orders.
• Difficult to price - since the prices are determined by the buyers and sellers, it can be difficult to determine a fair price. This can make it difficult to accurately assess the value of a security.
• Limited access - since call markets are typically limited to a small number of participants, access to these markets can be limited. This can limit the number of potential buyers and sellers and reduce the liquidity of the market.

Other approaches related to Call Market

Introduction: Call markets are not the only approach to trading, various other approaches exist as well.

• Auction Market - is a market where buyers enter competitive bids and sellers enter competitive offers at the same time. All transactions are made public and prices are determined by the interaction of buyers and sellers.
• A Continuous Market - is a market where transactions are constantly made and prices are constantly changing. This type of market works best with large numbers of traders and a lot of liquidity.
• A Hybrid Market - is a market that combines elements of both Call and Continuous markets. This type of market makes it possible to combine the advantages of both markets.
• Limit Orders - are orders placed on an exchange that limit the price at which the order can be executed. These orders can help traders limit their losses and can help them take advantage of price fluctuations.

Summary: Call markets are one approach to trading, however there are several other approaches such as Auction Market, Continuous Market, Hybrid Market, and Limit Orders. Each of these approaches has its own advantages and disadvantages and can be used to trade in different types of markets.

Call Market — recommended articles

Auction market — Currency certificate — Managed forex accounts — Premining — Floor trader — Selling Into Strength — Board lot — Retender — Swap Ratio

References

• Comerton - Forde C., Rydge J. (2006). The Influence of Call Auction Algorithm Rules on Market Efficiency Finance Discipline, School of Business, University of Sydney, p. 4-10
• Economides N., Schwartz R. A. (1995). Electronic Call Market Trading, "The Journal of Portfolio Management", volume 21, number 3, p. 10-17
• Kehr C. H., Krahnen J. P., Theissen E., (2001). The Anatomy of a Call Market1 "Journal of Financial Intermediation", number 10, p. 249-270
• Wah E., Hurd D. R., Wellman M. P. (2015). Strategic Market Choice: Frequent Call Markets vs. Continuous Double Auctions for Fast and Slow Traders "Computer Science & Engineering", volume 26, number 10, p. 2-10

Footnotes

Author: Ewelina Kruszewska