7 Understanding the Auction fabio

Hi and welcome back to the orderflow mastery course. We're going to now start the market micro mechanics 101 course and the first lesson is understanding the auction. So in the academic world there's been a lot of studying on the models of auctions and how they work. Several nobel prizes in 2020 were awarded because of the elaborated theory of the auction. And you typically have three types of auction. You have a forward auction which is the classical one where you have a seller and a lot of buyers trying to you know u get their hands on whatever they're selling. You have a reverse auction and a double auction. The auction of liquidity in the markets which is the underlying mechanism that moves every single market in the world is a mix of a forward auction and a double auction. Okay. where you have both buyers and sellers interacting with each other. So, a classic Ford auction is something you might have seen in the movies or maybe you have attended one where there's a bunch of paintings being sold at the auction. There's a middleman, a auctioneer with his little hammer and all of the rich buyers that are called the biders because they make a bid, right? They offer a higher price than everyone else. So the participants of an auction, if we have to categorize them, are the auctioneer, the paintings themselves, so the the sellers, the the goods being sold at the auction and the biders. And in this case, the biders would be the demand, the paintings would be the supply and the auctioneer is the middleman, right? And in an auction, you would have again the biders, the auctioneer and the painting sold. And let's say the first price is a,000. Well, someone comes and says, I'll pay a million and a 100,000. So original price is 1 million. He's going to pay 100k more. Well, awesome. That's the new price. Who can offer more? Another guy comes says I'll pay 1,200. Awesome. That's yours unless someone else is willing to pay a higher price. So the price of the good is determinated by this mechanism of is there anyone willing to pay more.