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What is a 'Call'

A call is an option contract giving the owner the right, but not the obligation, to buy a specified amount of an underlying security at a specified price within a specified time. 

A call auction is a time when buyers set a maximum acceptable price to buy, and sellers set the minimum satisfactory price to sell a security on an exchange. Matching buyers and sellers in this process increases liquidity and decreases volatility. The auction is sometimes referred to as a call market.

BREAKING DOWN 'Call'

A call auction is also known as a call market. The call auction is a type of trading method on a securities exchange. A call option is a derivative product which is traded on a formal exchange or in the over-the-counter marketplace. The term call is also used by lenders when they wish to demand the full repayment of a secured loan. 

Call Option

For call options, the underlying instrument could be a stock, bond, foreign currency, commodity, or any other traded instrument. The call owner has the right, but not the obligation, to buy the underlying securities instrument at a given strike price within a given period. The seller of an option is sometimes termed as the writer. A seller must fulfill the contract, delivering the underlying asset if the option is exercised.

When the strike price on the call is less than the market price on the exercise date, the holder of the option can use their call option to buy the instrument at the lower strike price. If the market price is less than the strike price, the call expires unused and worthless. A call option can also be sold before the maturity date if it has intrinsic value based on the market's movements.

The put option is the opposite of a call option. The put owner holds the right, but not the obligation, to sell an underlying instrument at the given strike price and period. Derivatives traders often combine calls and put to increase, decrease, or otherwise manage, the amount of risk that they take.

Call Auction

In a call auction, the exchange sets a specific timeframe in which to trade a stock. Auctions are most common on smaller exchanges with the offering of a limited number of stocks. All securities can be called for trade simultaneously, or they could trade sequentially. Buyers of a stock will stipulate their maximum acceptable price and sellers will designate their minimum acceptable price. All interested traders must be present at the same time. At the termination of the auction call period, the security is illiquid until its next call. Governments will sometimes employ call auctions when they sell treasury notes, bills, and bonds.

On more substantial exchanges, call auctions are used for the sale of less liquid stocks. Regular trading on these exchanges uses the alternative, more common, continuous trading method. With continuous trading, potential buyers and sellers post their desired price and matching is accomplished on an ongoing basis in an order book. Deals happen throughout the day on all securities.
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