What is the 'Opening Price'

The opening price is the price at which a security first trades upon the opening of an exchange on a given trading day; for example, the New York Stock Exchange opens at precisely 9:30 a.m. Eastern. The price of the first trade for any listed stock is its daily opening price. A security's opening price is an important marker for that day's trading activity, especially for those interested in measuring short-term results such as day traders.

BREAKING DOWN 'Opening Price'

The NASDAQ uses an approach called the "opening cross" to decide on a price level that serves as the best opening price, given the orders that accumulated overnight. Quite commonly, a security's opening price is not identical to its prior day closing price. This is due to after-hours trading and changes in investor valuations or expectations of the security occurring outside of trading hours.

Opening Price Deviation

Investor expectation can be changed by corporate announcements or other events that make the news. Corporations typically make news-worthy announcements that may have an effect on the stock price after the market closes. Large-scale natural disasters or man-made disasters such as wars or terrorist attacks that take place in the afterhours may have similar effects on stock prices. When this happens, some investors may attempt to either buy or sell securities during the afterhours.

Not all orders are executed during after-hours trading. The lack of liquidity and the resulting wide spreads make market orders unattractive to traders in after-hours trading. This results in a large amount of limit or stop orders being placed at a price that is different from the prior day’s closing price. Consequently, when the market opens the next day, a substantial disparity in supply and demand causes the open to veer away from the prior day’s close in the direction that corresponds to the effect of the announcement, news or event.

Opening Price Trading Strategies

There are several day-trading strategies based on the opening of a market. When the opening price varies so much from the prior day’s close that a price gap is created, day traders use a strategy known as “Gap Fade and Fill.” Traders attempt to profit from the price correction that usually takes place subsequent to a sizable price gap at the opening. Another popular strategy is to fade a stock at the open that is showing strong pre-market indication contrary to the rest of the market, or to similar stocks in a common sector or index. When a strong disparity is present in pre-market indication, a trader waits for the particular stock to make a move at the open contrary to the rest of the market, and then takes a position in the stock in the general direction of the market when momentum and volume for the stock begins to diminish for the initial contrary price movement. When executed correctly, these are high probability strategies designed to achieve small quick profits.

RELATED TERMS
  1. Day Trader

    A investor who attempts to profit by making rapid trades intraday. ...
  2. Opening Range

    The highest and lowest prices of a security during the first ...
  3. After-Hours Market Close

    The last transaction and final price of a security that is traded ...
  4. Nasdaq-100 After Hours Indicator

    An indicator of post-market sentiment and trading activity, calculated ...
  5. Opening Cross

    A method used by the Nasdaq to determine the opening price for ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The ...
Related Articles
  1. Investing

    Can I Sell A Stock At The After-Hours Price?

    Most major exchanges trade from 9:30 am to 4 pm Eastern Standard Time, but you’re not limited to selling stock between those hours.
  2. Trading

    What Is The Difference Between After-Hours Trading And Late Trading?

    “After-hours” trading and “late trading” both refer to investments made outside of normal business hours. While the two activities sound similar and often take place in similar time frames, the ...
  3. Investing

    Ways To Gauge The Market Open Direction

    Accurately predicting the stock market’s opening moves can be a useful tool. If your projection is accurate, you have opportunity to profit. Of course, the first step is to correctly gauge the ...
  4. Investing

    What's After-Hours Trading?

    After-hours trading occurs on major exchanges outside of regular trading hours, and takes place between 4:30 and 8 p.m. Eastern time.
  5. Investing

    What The Market Open Tells You

    The first few moments of trading provide a lot of information. If a trader analyzes this information, it can give a lot of insight into the market's moves for the day.
  6. Trading

    Intro To Open Interest In The Futures Market

    Applied primarily to the futures market, this indicator confirms trends and reversals.
  7. Investing

    The Auction Method: How NYSE Stock Prices are Set

    The New York Stock Exchange (NYSE), sometimes referred to as “the big board,” is the oldest and largest stock exchange in the United States. NYSE is the place investors think of when ...
  8. Investing

    Day Trading Strategies

    Day trading is the term often used for buying and selling stocks within the same day. Day traders seek to make a profit by leveraging large amounts of capital in order to take advantage of small ...
  9. Insights

    Stock Quotes Explained

    Curious about how stock quotes are compiled and what a trader should know about how? Read on.
  10. Personal Finance

    A Day in the Life of a Day Trader

    Day trading has many advantages and, while we often hear about these perks, it's important to realize that day trading is hard work.
RELATED FAQS
  1. How can my stock's price change after hours, and what effect does this have on investors? ...

    Most investors know that the major stock exchanges have standard trading hours - set periods of time each day when trading ... Read Answer >>
  2. Why are the bid and ask quotes usually so far away from each other in after-hours ...

    After-hours trading is defined as the exchange of securities outside of an exchange's specified regular trading hours (usually ... Read Answer >>
  3. What trends and data influence after-hours traders the most?

    Learn about the specific information that after-hours traders review to influence their trading. Read Answer >>
  4. What are the benefits of using open interest as an indicator?

    Find out more about the open interest of option contracts, what the open interest indicates and the benefits of monitoring ... Read Answer >>
  5. What is the best time of the day to trade?

    Unlike traditional investing, trading, or day trading, has a very short-term focus. Analysis may be broken down to days, ... Read Answer >>
  6. Why don't stocks begin trading at the previous day's closing price?

    Most stock exchanges work according to the forces of supply and demand, which determine the prices at which stocks are bought ... Read Answer >>
Hot Definitions
  1. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  2. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  3. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  4. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  6. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
Trading Center