What is a periodic auction market?

In a periodic auction market, trading is structured to occur at a specific time, whereby all buy and sell orders are aggregated and executed at a single price. This mechanism allows market participants to submit their orders before the auction and to match these orders based on supply and demand at that designated time. The key feature of this market structure is the concentration of liquidity at a single point, which can reduce volatility and improve price discovery.

This contrasts with continuous markets, where trades can be executed at any time during trading hours, leading to varying prices throughout the day. In a periodic auction setup, the transparency of pricing is enhanced as all trades are executed simultaneously at the closing price determined by the auction process, ensuring that all participants trade on the same terms at that moment.

Such markets are particularly beneficial for assets that do not have continuous trading due to lower liquidity or those where market participants can strategically time their orders to achieve a better price outcome.