An auction market is an example of buying and selling of financial instruments that takes place on the floor of an exchange, such as the New York Stock Exchange. Sometimes referred to as open outcry trading, the auction market provides a means for buyers and sellers to compete in a real time environment, with the stocks and bonds usually going to the highest bidder.
The attraction of auction markets is that the process allows for quick and swift trading. Competitive bids for available stocks and bonds can be accepted and approved immediately, since everyone on the floor of the stock exchange have to meet strict criteria in order to participate in the bidding process. As with any type of auction, these qualified participants are free to make as many bids as possible, creating a lively atmosphere. For many, this form of bidding is much more exciting than any type of online or indirect negotiations through a third party, such as in the case of over the counter markets.
While most auctions employ the use of one auctioneer, an auction market is an eclectic mix of both buyers and sellers. Sellers vie for the attention of the buyers, while buyers are also actively engaged in attracting the notice of persons who wish to purchase stocks. While this approach may appear to be unstructured to the novice, the fact is that most people who choose to participate in an open market have honed their skills to the point that they are often able to obtain the desired results. Sellers often leave with a price that is acceptable, while buyers obtain shares at a unit price that is considered to be competitive and fair.
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An auction market approach to buying and selling shares of stocks also has the distinction of being a time-honored tradition. Long before the advent of any type of electronic technology to support trading, the open auction market was considered the most efficient means of building a solid stock portfolio. Even as modern telephony made it possible to obtain real time information, the concept of an auction market continued to be highly desirable. Persons who were unable to travel to an auction floor were still able to provide agents with authorization to buy and sell within certain limitations, and see the results in a very short period of time. While online trading has gained a great deal of attention over the last two decades, there is no doubt that the auction market will continue to be the preferred means of trading for many investors.