Do you take an interest in share market and want to invest in share market, and then I am going to tell you about auction theory and how does auction market theory helps you to invest your money in the right one. In an auction market, buyers enter competitive bids, and sellers submit their competitive offers at the same time to the buyers. The price at which a stock trades represents the highest price that a buyer is interested to pay and the lowest price that a seller is willing to accept. Matching bids and offers are then paired together, and the orders are executed. The New York Stock Exchange (NYSE) is one of the examples of an auction market.
So friends read this article to the last point and I am sure you will get enough idea about the auction market theory and it will help you to invest your money too.
What is auction market theory?
The auction market theory is basically based upon ‘fair value’. All free markets seek fair value and is determined by one of the pillars of economic theory: supply and demand. Fair value is the balance between what some person is interested to pay and what price another person is interested to sell. It is actually the price at which both buyers and sellers agree.
Markets are complex and what takes price up or down depends on the constant shifting of market price or just a fundamental change in market conditions. These conditions move price in a seemingly random rhythm between trending price moves and consolidating sideways markets. It's our job as a trader to understand how these prices are moving ups and downs. At the very least profit some inefficiency in the market, through probabilities and good risk management.
Balanced Market
When markets price becomes stronger or in a bounded range, then according to auction market theory the market is balanced. In a balanced market sentiment is moving around fair value. Price trades within a bounded range where the volume traded or time spent within this range is normally distributed.
Unbalanced Market
When markets trends, according to the auction market theory the market is unbalanced. In an unbalanced market, price is ‘seeking’ to find fair value. Price making a move significantly in one direction until it reaches its state of balance once again. The market will then range sideways. In trending markets volume is slightly distributed over the trending area and prices moves rapidly through these areas.
Fair Value
Let's discuss the auction market theory in detail taking petrol as an example.
Suppose petrol is currently valued at 71/liter. We know that buyers are motivated to get a good deal on how much they pay for petrol at the pump. While the petrol retailer wants to get as much per liter of petrol as they can.
Sellers want to get the most they can and the buyers want to pay the least.
Now, let's say petrol prices go up to 80/liter? At such high levels buyers will not be interested to pay these high prices.
At these high levels consumers may decide to hold off on filling their tanks. They might even choose not to drive their vehicles so often.
On the other hand, petrol retailers are keen to sell as much petrol as possible at these prices.
At these high prices and the combination of less interested buyers and more aggressive sellers, creates a situation of unfair pricing. As a result the market again reverse back to 71/liter.
If for example a same kind of situation occurs but in reverse i.e. petrol prices drop to say 62/liter. The same case would apply. Price would finally reverse back to trading closer to 71/liter.
This is what we call a fair value in auction market theory.
So as you read about the auction market and about balanced and unbalanced market and at last you got to know about the fair value in auction market theory and these points are enough to make a decision where and why to invest your money on the basis of auction market theory.
.How Nifty Plays a Complete Role in Trading
Are you having any kind of problem on investing your money in NIFTY then i am here to solve your problems related to the topic of share market in this blog we are going to study in a brief about Nifty and how bank nifty option plays an important role in trading, first of all we all will study about Nifty and what is bank nifty option.
What is Nifty?
Basically we all call it nifty but it's actually known as the NIFTY 50 which was launched on 1st April 1996 and it is owned and managed by India Index Services and Products (IISL).
The NIFTY 50 covers a total of 12 sectors of the Indian economy. During 2008-12, NIFTY 50 Index share of NSE market capitalization fell from 65% to 29% because of the rise of sectorial indices as NIFTY Bank, NIFTY IT, NIFTY Pharma, NIFTY Next 50, etc. The NIFTY 50 Index gives 29.70% of its shares to financial services, 0.73% weightage to industrial manufacturing and 0% weightage to agricultural sector.
The NIFTY 50 index is a free float market capitalization weighted index. The index initially was calculated on full market capitalization method. From June 26, 2009, the computation has been changed to free float methodology. The base period for the CNX Nifty index is November 3, 1995, which completed one year of operations of National Stock Exchange Equity Market Segment. The base value of the index has been set at 1000 and a base capital of Rs 2.06 trillion.
These are some of the things we need to know about NIFTY before entering into the field of share market.
Now I am going to tell you how bank nifty option in trading plays an important role in the stock market.
How trading in bank NIFTY option makes a sense?
As we all know that the Nifty 50 Index is a basket of 50 stocks. These stocks are selected to represent a wide section of the India economic sectors. This makes Nifty a good representative of the bigger economic activity in all over India. This naturally means if the general economic activity is going up or at least expected to go up then Nifty’s value will also goes up, and vice versa. This also makes trading in bank Nifty Futures a much better choice as compared to any single stock futures.
This is all about the NIFTY and how does bank NIFTY option in trading plays an important role in the field of stock market.
I hope friends i could you help you in that you as u wanted and solved all your problems about the stock market by telling in brief about this, beside this if you want to know anything about share market or NIFTY then friends please go to the comment section and drop a comment about what you want to know, i am waiting for your comments.
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