In an auction, all buy and sell orders are pooled and matched in an order book; the auction price is determined according to the principle of highest volume transacted.

The auction system enables participants with the highest bid prices (the demand side of the market) and the lowest ask prices (the supply side of the market) to execute their orders. Because the price determination procedure does not require a trading intermediary, it can also be performed by the electronic trading system.

The Xetra® electronic trading system determines prices also using the auction system. The market model on which the system is based provides for a number of regular auctions: the opening auction, the closing auction and, depending on the stock, several intra-day auctions. Each auction consists of three phases:

•  Outcry phase: in this phase, participants can enter orders and quotes, or delete previous entries. In stock trading, the order book is sometimes closed, whereas in bond trading it is always open (i.e. it can be examined by anyone who wishes to do so).
• Price determination phase: the auction price is determined in keeping with the principle of highest volume transacted, on the basis of the order book situation at the close of acceptance.
• Market clearing phase: after the auction price has been determined, there may be an overhang of orders, either with a limit at the auction price or with no limit; in this case, the orders are offered to the market at the auction price.

Antonym: Market-maker principle