Call Market

A market where trading does not take place constantly, but only at specific times

What is the Call Market?

The call market refers to a market where trading does not take place constantly, but only at designated times. Prices are dictated by the trade rather than by the acquisition and sale activity. In the call market, orders are aggregated and collected at designated intervals instead of trading throughout the day.

 

Call Market

 

Orders in the call market are transacted at specific time intervals, and sell and buy prices are then calculated. The exchange will calculate the clearing price in the market based on the number of shares or securities sold by the sellers and the bid by the purchasers. Call markets are no longer common and are only used in cases where there are few traders and few transactions take place.

 

Summary

  • The call market refers to a market where trading does not take place constantly, but only at specific times.
  • Buy and sell orders are aggregated and collected at designated intervals instead of trading throughout the day.
  • All participants in the call market are called to be available at the same place and time. Such a moment on the exchange is referred to as a trading session.

 

How the Call Market Works

In the call market, the auctioneer calls to purchase and sell security orders and groups them for execution at designated times during the business day. The role of the auctioneer is to balance the supply and demand for a security in a better way to reach a clearing price.

Both buy and sell orders on the exchange shall be made at the clearing price. The auctioneer will make small buying orders at or below the clearing price and will restrict orders to be sold at or above the clearing price.

For example, assume that for Company ABC, the following buy orders are received:

  • Buy 500 shares at $4.50
  • Buy 600 shares at $4.00
  • Buy 400 shares at $4.20
  • Buy 700 shares at $4.50
  • Buy 400 shares at $4.25

 

  • Sell 500 shares at $4.50
  • Sell 600 shares at $4.00
  • Sell 400 shares at $4.20
  • Sell 700 shares at $4.50
  • Sell 400 shares at $4.25

 

In the call market, buy orders are bundled together and performed at a price and time that will clear much of the orders. In the example above, the clearing price maybe $4.50. It can be seen here that even if some of the parties were ready to purchase or sell for $4.00, the price that clears the majority of the trades is $4.50, and that is the price at which the currency market analyst carries out these trades on the call market.

 

Significance of the Call Market

All participants in the call market are called to be available at the same place and time. Such a moment on the exchange is referred to as the trading session. Such a condition makes the market very liquid. When “call time” goes past the market, it changes all over and becomes immovable.

The call market can even operate in a rotation where all the transactions can be named in either one session or multiple sessions may be called. It is not only found in small economies but also in certain countries where governments issue bonds or notes.

Trades are performed as orders on call markets. There is a price set dependent on the powers of sellers and buyers. Both buy and sell orders are written down based on which price is selected. Such a decision is, therefore, taken to optimize the potential of transactions.

Call markets are occasionally used in contrast to auction markets, where price finding and trading deals occur continually between multiple buyers and sellers. However, the call markets are helpful for illiquid securities due to the very existence of the securities or because of the presence of a few sellers and buyers to establish an active market.

The drawback is that the traders in the call market are prone to higher price volatility. They give their orders and then wait for the result. The traders in the call market are, however, covered by limitations on variations from the previously executed price.

 

More Resources

CFI offers the Capital Markets & Securities Analyst (CMSA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

  • Alternative Trading System (ATS)
  • Exercise Price
  • Spot Market
  • Trade Order Timing

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