Auction market trading, sometimes known as open outcry, is the way the major exchanges, such as the New York Stock Exchange (NYSE) and the Chicago Mercantile Exchange (CME), have traditionally handled buying and selling. Brokers acting for buyers compete against each other on the exchange floor, as brokers acting for sellers do, to get the best price. While the trading can be quite intense, it is orderly because the participants adhere to exchange rules.
In an auction market, buyers enter competitive bids and sellers submit competitive offers at the same time. The price at which a stock trades represents the highest price that a buyer is willing 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 an example of an auction market.
A traditional way of communicating information across the trading floor of a stock, commodity or futures contract exchange. Traders communicate verbally and use hand signals. For example, one trader might signal they're keen to sell at a particular price and another may respond that they're willing to do a deal.
Exchanges have gradually replaced open outcry systems with electronic trading, in order to improve efficiency and lower costs. But while they might appear to lack structure, there's method in the madness, since open outcry systems convey lots of important jargon and price information.