The opening auction

Markets, lesson 6

Finding the one price that matches the most shares.

You know continuous matching: each order is matched the moment it arrives, best price first, then oldest first.

Part 1. One price for everyone

Before the market opens, orders pile up without trading. Then the exchange picks one price and trades everyone willing to trade at it, all at once. Move that price.

GULL's opening auctionLive

At any price, buyers willing to pay at least that much can trade with sellers happy to take at most that much. Each share needs one of each, so the smaller side is what can trade. The open is the price where that amount is largest.

Call auction and clearing price

A call auction collects orders for a while, then matches them all at one price, the clearing price. While orders are being collected, the book can be crossed. That's the one time a crossed book is normal.

Part 2. Volume at each price

Example 2.1

The starting orders, price by price

buys102 × 300101 × 200100 × 40099 × 30098 × 200
sells98 × 20099 × 300100 × 300101 × 400102 × 300
The ten orders in the lab before you added any. "102 × 300" is 300 shares with a limit of 102.
buyers at 100 or more300 + 200 + 400=900
sellers at 100 or less200 + 300 + 300=800
At 100, buyers want 900 and sellers offer 800. 800 can trade.
98: 20099: 500100: 800101: 500102: 300
Do that at every price. Low prices bring buyers but scare off sellers, and high prices do the opposite. 100 matches the most.

Keep going with Pro

You've done the first part. Pro opens the rest of this lesson, and every other one.

Still to come

Volume at each price
Ties, and who fills
A worked problem
The same thing, for real

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Next lessonYou are the market makerQuote a bid and an ask, and meet traders who know more than you. Start lesson 7

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06 · The opening auction