A Periodic Call Auction is a special stock trading method used to buy or sell illiquid shares—those that don’t trade often. Instead of matching trades instantly like in normal trading, these shares are traded at set times in batch sessions.
Why It Exists
Some stocks don’t have enough buyers or sellers. These are called illiquid shares.
Without enough trades, prices can be manipulated easily.
The Periodic Call Auction helps by:
- Reducing price manipulation
- Ensuring fair price discovery
- Grouping all orders together at one time
How It Works (Step-by-Step)
- Time Slots: Trading happens in a fixed time window (usually every 60 minutes).
- Order Collection: All buy and sell orders are collected together.
- Price Matching: The stock exchange finds a single price that matches most buy and sell orders.
- Trade Execution: All trades are executed at that one price.
- Repeat: This process is repeated at fixed intervals throughout the day.
Real-Life Example
- Let’s say Company XYZ is illiquid.
- Between 10–11 AM, 100 shares are bid at ₹10 and 80 shares are offered at ₹9.90.
- Exchange sets a common auction price—say ₹9.95—where most orders match.
- Trades are executed at ₹9.95 for all matched buyers/sellers.
Which Shares Use This System?
- Shares marked as “illiquid” by SEBI or exchanges.
- Usually those:
- With very low daily trades
- Traded by very few investors
- With very high price swings
Benefits of Periodic Call Auction
| Feature | Benefit |
|---|---|
| Order bunching | Better price matching |
| Fairer trading | Reduces unfair price jumps |
| Prevents manipulation | Safer for small investors |
| Price stability | No wild intraday price swings |
Points to Remember
- You can’t trade illiquid shares freely during the day—only in the auction windows.
- You may not find a match for your order every time.
- Stocks can move in or out of this system based on liquidity levels.
Why It’s Important for You
If you hold or want to invest in low-volume or penny stocks, your trades may happen through Periodic Call Auctions.
It’s crucial to:
- Be patient
- Understand the auction timings
- Use limit orders, not market orders
