Ask Colin

What is the "auction" that takes place before the ASX opens?

It is possible to place orders in the SEATS system before trading begins. The market does not open until 10am EST and stocks open for trading in turn after that. Orders placed before the market opens will not be acted upon until the market opens.

Of course, orders placed before the market opens may also be cancelled before the market opens. Some traders will place orders in this period to feel the market out or to create an impression of demand or supply. As at any time, this is a form of advertising, except that when the market is open you can hit these bids and offers and get a fill, whereas before the market opens, they can shift their orders, creating a kind of auction as you suggest.

There is also a peculiar situation that can occur when there are bids in the system at higher prices than the offers in the system. There is an algorithm that the SEATS computer runs through to resolve this situation progressively filling bids and offers until a spread with the offers higher than the bids is established. It can be that in this situation the bidders get set at a lower price than they bid or the sellers get done at a higher price than they offered.

For purposes of paper trading - to see whether you might get a fill - you need to look at what happens when the market was open.