What Is Opening Stock Price?
The opening stock price refers to the price of a security at the start of the trading day. Each stock exchange has a different way of announcing the “opening” of the trading day. For example, the New York Stock Exchange has an opening bell.
The bell rings at 9:30 a.m. Eastern time every day. The last trading price for a security typically becomes the opening price on the exchange at this time. However, this is not always the case.
Example of Opening Stock Price
Suppose there is a stock called XYZ.
On November 13th, its final trading price was $5. On November 14th, when the stock exchange opens, the stock’s opening price will be $5 if nothing has happened during the night to influence the stock’s price.
Keep in mind that stock trading throughout the night on other exchanges could impact the security’s opening price.
How Is the Opening Price of a Stock Determined?
The closing price of the previous day is not the only factor determining the opening stock price. Other factors also have a role to play. For instance, there may have been news since the closing price that changed the trends in the stock market.
Trading occurs on foreign exchanges even when the U.S. market is closed. Also, since the market’s previous close, there may have been an influx of changed or new orders.
On the New York Stock Exchange and some other exchanges, a specialist considers supply and demand — among other factors — to determine the opening stock price.
At the New York Stock Exchange, this specialist, called the Designated Market Maker, holds an “auction” for the stock to provide visibility into interest for both buyers and sellers and gauges interest to narrow the stock price to a final number.
Impact of After-Hours Events on Opening Stock Price
Even when the stock market closes, trading still continues. Investors can place sell and buy orders in the after-hours, too.
If orders are queued overnight, they are fulfilled when the market opens the next day. Thus, these orders affect the opening price of the next day.
Similarly, after-hours news can also raise or lower the opening stock price. Companies often wait for the market to close before they make any significant announcements that may affect stock prices.
If a major company makes a positive announcement, such as high revenue generation for the season, their stock price may increase as investors will be willing to pay more for stock from a company that is doing well.
Meanwhile, if bad news is announced, the opening stock price could be lower than its closing price.
Good To Know
NASDAQ determines the opening stock price using a method called the opening cross. The exchange accumulates data on the sell and buy interest among participants in the market for a specific stock two minutes before the market’s opening time. This information is available to all investors.
Should You Buy Stocks Before the Market Opens?
If you expect the opening stock price to be higher than the previous closing price, it is wise to invest in it. Many traders analyze economic conditions in the pre-market time, from 4:00 AM to 9:30 AM, to determine if some stock may do well during the day.
For instance, if a company releases a good earnings report during the after-hours, its stock price will likely rise. In that case, investors tend to buy the stock before the opening hours. This strategy is most helpful when you are buying stocks in a big company.
Since the stocks of big companies are more readily available, the prices are less volatile. Plus, they have many shares trading even before the exchanges open up.
Information is accurate as of April 26, 2022.
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