A call option is a contract that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period (until its expiry).

A call option gives an investor the right to “call in” (buy) an asset. You profit on a call when the underlying asset's price increases.

Call buying is the simplest way of trading call options. Novice traders often start off trading options by buying calls, not only because of its simplicity but also due to the large return on investment generated. Instead of purchasing call options, one can also sell (write) them for a profit. Call option writers, also known as sellers, sell call options with the hope that they can pocket the premiums. This involves more risk but can also be very profitable when done properly.

Matching contract At a call auction, traders place orders to buy or sell units at certain buying or selling prices. Orders collected during a call auction are matched to form a contract. Call auction rules vary by auction.

In the securities market, this procedure replaces the method of continuously matching orders. Buyers set a maximum price at which they will buy shares and sellers set a minimum price at which they are willing to sell the stock shares. Advantages of call auctions include a decrease in price instability.

Limited orders are collected over a (fixed) period. At the end of this time the orders are processed in the auction. The price that enables the largest number of orders to be executed is chosen: if the prices were higher the trade volume would fall through lack of buys, if the price were lower the trade volume would fall through lack of sells.

Call auctions have a number of disadvantages:

* Investors have to wait until the next auction is held to find out if their orders have executed.

* The market reacts more slowly to news.

The call auction form of trading died out in the pre-computer age but has made its re-entry today as an electronic marketplace. An electronic call auction has been incorporated in recent years in a number of market centers around the world, most notably Deutsche Borse, Euronext (the Paris, Amsterdam, Brussels and Lisbon exchanges), the London Stock Exchange, and the NASDAQ Stock Market. These electronic calls have been combined with continuous trading to create hybrid markets. With this, an investor can select among alternative trading venues depending on the size of the order, the liquidity of the stock being traded, and the investor’s own motive for trading.

Call auction trading had been very popular with continental European exchanges in the earlier days when they still had floor trading. But with growing competition among exchanges, continuous trading became increasingly popular. This went hand-in-hand with extended trading hours. With an electronic open limit order book, traders around the globe are able to see the auction as it forms, and can enter their own orders with electronic speed.

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