Continuous Trading Definition

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Continuous Trading Definition

What Is Continuous Trading?

Continuous trading is a technique of transacting securities transactions that includes market makers and specialists immediately executing orders upon receipt.

Key Takeaways

  • During normal trading hours, continuous trading expedites all orders as quickly as feasible.
  • Continuous trading contrasts from batch trading, which is how most exchanges handle market openings.
  • Overnight deals are piled up, and market makers alter prices to accommodate as many as possible immediately at the start.

Understanding Continuous Trading

All sorts of transactions on secondary markets in the United States are based on continuous trading. It is analogous to batch trading, which is the inverse of continuous trading and happens just at market open.

Continuous trading happens throughout the business day, with market makers executing trades immediately. Batch trading, on the other hand, entails executing a batch order of transactions that have been delayed by unexecuted orders that are queued up and waiting to be completed. Prior to the market opening, market makers may evaluate supply and demand from batch orders. As a result, each day at the market’s start, a batch order of transactions is completed with orders put for market maker processing during the market’s off hours.

While all exchanges currently use continuous trading, institutional investors or fund managers may use batch trading to rebalance their holdings on a daily basis.

The market creating process, which serves as the foundation for secondary market exchanges, facilitates continuous trade. Market makers link buyers and sellers to execute deals continually throughout the trading day. Market makers carry out deals that have been placed for order at the current market price.

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A market maker must acquire securities from a seller and sell securities to a buyer in order to connect interested buyers and sellers in the open market. This is known as the bid-ask procedure, and it results in a profit for the market maker. The market maker profits from the value difference between the bid and ask prices, commonly known as the spread.

Special Considerations

Investors may place a variety of trading orders. Since the investor is prepared to accept the market price, market orders are quickly submitted for continuous trading execution.

Other instructions are classified as conditional orders since they are only to be performed if one or more stated conditions are met. An investor may place many sorts of conditional orders. These orders have a set price that the investor wishes to be executed in the open market.

To be evaluated by a market maker, the price for execution must reach the existing market price for these orders to be accepted in the market for continued trading. As a result, although the market provides continuous trading, an investor’s conditional order will only be executed in the continuous trading market when the price is accessible.

In certain cases, an investor may indicate whether they want their order to be executed whole or partly at the requested price. Due to the availability of continuous trading, some orders may only execute partly, but other ones may need the complete order to be executed.

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