The Option Properties of Limit Orders in Call and Continuous Environments

Abstract

One of the most basic design features of a trading system is whether the orders of market participants are (i) temporally consolidated for multilateral execution at a single price (a call auction) or (ii) executed any time two counterpart orders cross in price (a continuous market). The difference that is often perceived by market participants between these two trading systems is the temporal execution of their orders, and some students of the market have claimed that a limitation of a call auction is the inability to obtain immediate executions. We suggest in this paper that, while the limitation may be relevant for eager traders, it is not the only important difference between these two trading systems.