Auction Process in Share Market: Connecting Buyers and Sellers
How Auction Works in Share Market
If you sell shares on the exchange and fail to deliver them on T+1 day, the exchange will buy back those shares through an auction process. Your broker will charge you with the actual auction price + brokerage + penalty for this.
An auction market is similar to a regular stock market. In both cases, buyers and sellers submit bids and offers for a trade. The highest bid wins the trade.
The seller puts up the shares for sale
When a person sells shares on the stock market, he or she has to transfer them to the exchange’s demat account. In case the client fails to do this, the exchange notifies that he has defaulted on delivery. It will then put the undelivered shares for auction.
The auction process involves inviting bids from all members brokers. If the highest bid wins, the exchange will purchase the shares and deliver them to the buyer. The buyer will then be credited with the amount that he or she paid for the shares.
The auction market is an important part of the stock market. It helps to connect buyers and sellers, making it easier for them to make deals. It also ensures that no one has an advantage over another. The auction process varies from one exchange to another, but the core principles are similar. The auction market has two competing forces that drive prices back and forth until they find a compromise.
The buyer makes a bid
The buyer will put up a buy order in the exchange with a price that they are willing to pay for the shares. They also indicate the number of shares they want to purchase. The highest bid is executed and the share is sold to the buyer.
For example, if Bittu short sells 1 share of Apollo Hospital on Monday and on T+1 day the seller defaults in delivering shares to his broker, the exchange will call for an auction market session and buy back the shares from the defaulting seller at the valuation price (Valuation Debit = Closing Price of the stock not delivered + Rs 20). The profit made by the buyer will go to the Investor Protection Fund.
Auction markets are efficient because trades only take place when a buyer’s bid and a seller’s offer match. There’s no negotiating like there is in OTC markets. The auction process has several variations, but the core concept is that the highest bidder wins the auction.
The seller accepts the highest bid
As the market participants bargain back and forth, prices move up and down until they reach a point where both parties agree on fair value. This process works differently in an auction market than it does in the stock market, but the basic principles are similar.
In an auction market, buyers and sellers simultaneously enter aggressive bids for a security. These bids reflect the highest price that a buyer is willing to pay for a share and the lowest price that a seller is willing to accept for a share.
There are several different types of auction processes, but the highest bidder wins in each case. A minimum bid auction is a little safer for the seller, but it’s less desirable for buyers. An effective way to avoid auctions is to use an online trading platform. This will make it easier for you to keep track of the shares you buy and sell. Moreover, it’s possible to avoid the auction of your stocks by executing all transactions yourself rather than relying on a broker.
The buyer pays the seller
An auction is a process that offers many prospective buyers the opportunity to bid on a product or service. The highest bidder will normally buy the item or services. Auctions are used for a wide variety of products and assets, including shares on the stock market. Auctions are also commonly used to sell cars, houses, and even pets!
In a minimum bid auction, the seller sets a base price from which the bidding starts. This is safer for the seller than an absolute auction but it is less desirable to buyers.
The auction pricing is determined by the stock price determination on the auction day. The minimum auction price is 20% lower than the closing price on the business day prior to the auction. If it is lower, you may profit but the difference will go to the Investor Protection Fund (some brokers may pass this gain to you). If you want to avoid auction, online trading can be an effective solution.
