(excerpted from Chapter 3, How To Use Limit and Market Orders, in Robert A. Schwartz,
Reto Francioni and Bruce W. Weber, The Equity Trader Course, John Wiley & Sons, 2006)
Order driven markets can be structured in two fundamentally different ways.
First, with a continuous market, a trade can be made at any moment in
continuous time that a buy order and a sell order meet in price. In the
continuous market, trading is generally a sequence of bi-lateral matches. In
contrast, in a call auction, orders are batched together for a simultaneous
execution, in a multilateral trade, at a specific point in time. At the time of
a call, a market clearing price is determined and buy orders at this price and
higher execute, as do sell orders at this price and lower.
The continuous and call auction environments can be combined. Call auctions
are typically used at the beginning of each trading session to open the market.
Calls can also be used to close and to restart the market (the major European
equity markets do this) and periodically during a trading session (Deutsche
Brse runs two intra-day calls).