Monday, April 27, 2009

continuous versus call market

No market is ever truly continuous.for trades occur at discrete times. However ,some markets are explicitly organized to group trades at specific times. In such call markets,when a security is called,all who wish to buy and sell are brought together. Enough time is allowed to elapse between calls(e.g.,an hour or more )to accumulate a substantial number of offers to buy and sell. In some call markets there is an explicit auction in which prices are called out until the quantity demanded is as close as possible to the quantity supplied (this procedure is used by the Paris Bourse for Major stocks).In other call markets,orders are left with a clerk between calls and"crossed"at a price that allows the maximum number to be executed (this procedure is used for some stocks by the Paris Bourse and the Tokyo stock Exchange).
In a continuous market trades may occur at any time. While such a market could function with only investors and brokers,it would not be very effective,for an individual who wished to consummate a sale or purchase very quickly would either have to spend a great deal of money searching for a good offer or run the risk of accepting a poor one. Since orders from investors arrive more or less randomly,prices in such a market would vary considerably ,depending on transitory relationships between desired purchases and sales.

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