Stock Price Formulation

What is the 'zaraba' method?

Update : Jan. 04, 2010

Answer :

The "Zaraba" method, or continuous auction method, is the ongoing process used to match each order individually during the rest of the trading session, once the opening prices has been determined. The tables below illustrate how the Zaraba method works.

Offer	Price	Bid	Currently the best offer is of 2,000 shares at 501 yen, and the best bid is of 600 shares at 500 yen. A market buy order for 200 shares is then placed on the book. A mark "#" means an expected execution price.
	M.O.	200
800	502
2,000	#501
	500	600
	499	800
	498	3,000

Offer	Price	Bid	This market buy order is matched with the sell order with the highest priority. In this case, it is the sell order with the lowest price, which is for 2,000 shares at 501 yen . So the 200 shares are bought at 501 yen, leaving 1,800 shares offered at 501 yen.
	M.O.	200
800	502
2,000	#501
	500	600
	499	800
	498	3,000

Offer	Price	Bid	Next, a sell order of 1,000 shares at a limit price of 498 yen is placed. This is first matched with the buy order with the highest priority, which of 600 shares at a limit price of 500 yen.
	M.O.
800	502
1,800	501
	#500	600
	499	800
1,000	498	3,000

Offer	Price	Bid	The remaining 400 shares of the limit order are then matched with the next highest priority buy order, which of 800 shares at a limit price of 499 yen.
	M.O.
800	502
1,800	501
	500
	#499	800
400	498	3,000

Thus transactions are carried out continuously under the Zaraba method after determination of the opening price during the trading hours.