Future Business Leaders of America (FBLA) Securities and Investments Practice Test

Which market is referred to as a "double auction" market where buying and selling occur simultaneously?

1. First market

2. Auction market

3. Second market

4. Over-the-counter market

The correct answer is: Auction market

The concept of a "double auction" market refers to a trading system where buyers and sellers submit their orders simultaneously, leading to an interaction where transactions are executed based on the bids and asks of participants within the market. In an auction market, such as those found on stock exchanges (for example, the New York Stock Exchange), buyers express how much they are willing to pay for a security while sellers indicate how much they are willing to accept. The exchange matched these orders in real time, allowing for the establishment of a market price based on the matching of supply and demand. The underlying principle of a double auction is that it facilitates price discovery, as the prices adjust based on the urgency and the willingness of participants to complete transactions, which adds to the liquidity of the market. This mechanism ensures that both buyers and sellers have the chance to influence prices simultaneously, enhancing transparency and efficiency in the trading process. While other market types, like the first market, second market, and over-the-counter market, do have characteristics of buying and selling, they do not primarily operate under the double auction model, where orders from all market participants are processed concurrently in order to match buyers and sellers directly.