What is meant by stock auctions and why it is done?

In auction market buyer states the highest price at which they can buy willingly and sellers states the lowest price they are ready to accept and here trade occurs when both the parties i. e buyer and seller agrees on a specific price.Process of auction market is different from over the counter market as here there is no direct negotiation between buyers and sellers.In auction market for securities we have number of buyers and sellers which is not the case with other traditional auctions.While trading in different stocks and commodities trading tips, mcx tips of market experts can be used for getting profitable trade results.

Auctions are conducted over exchange for reason like if shares are delivered to the exchange on time as it was expected.And in order to penalize the party who is at default for not delivering shares on time exchange conduct auctions.When defaulting party does not deliver the shares on time to exchange, the exchange is also not able to deliver the shares to the one who had purchased them.The purchasing party might have sold shares before receiving and then it will also be not able to deliver shares on time and the cycles continues. Because of this auctions are conducted so that pay in and pay out of shares takes place on time.

Securities are auctioned if they are either delivered short or found objectionable by exchange and based on the reason they are classified into two types:

1. Auction because of shortage

Auction because of shortage occurs when a party is unable to deliver shares to exchange on time because of which exchange is not able to deliver share to the purchasing party and further purchasing party is not able deliver on time if it had sold shares before receiving it.Confusion about the delivery date of shares is one of the most common reason why shares comes under auction because of shortage.

2. Auction because of objection

There are several reasons because of which physical shares are found objectionable like : missing signature of the transferor, missing witness stamp, missing stamp of the registrar of the company and more.

Once a share has been identified as objectionable it is returned to the broker by the exchange and further it is broker's responsibility to inform client and rectify the objections. If in case a party fails to rectify objection within the given time period then share goes for auctions and defaulting party is penalized.

In auction market the defaulting party suffers a loss as if the stock is at great demand and its price will be high and the defaulting party has to pay difference between auction price and actual selling price of stock.These are few important points to know about stock auction.Traders can perform well in market by having a good knowledge of different market terminologies and following financial advisory services while trading. A well informed and disciplined trader is aways likely to perform and earn well in market.

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