What Is the Close?
The close is a reference to the end of a trading session in the financial markets when the markets close for the day. The close can also refer to the process of exiting a trade or the final procedure in a financial transaction in which contract documents are signed and recorded.
- The close is simply the end of a trading session in the financial markets, however, closing times tend to vary between market and exchange.
- Many markets also offer after-hours trading beyond the official close, although traders should exercise caution when transacting outside of traditional market hours.
- Understanding the closing times of various markets is important to avoid making any costly mistakes.
- Closing can also refer to closing out, or completing, a trade—or to the end of a deal or transaction, depending on the context.
Understanding the Close
Being aware of when markets open and close is essential for efficient trading, regardless of the exchange or type of security. Knowing when and how to close out a trade is also critical for market participants.
The most visible example of a market close is the close of the New York Stock Exchange (NYSE) when the closing bell is rung, but closing times vary between markets and exchanges.
NYSE equity trading hours are from 9:30 a.m. Eastern Time to 4:00 p.m. Eastern Time. Pre-market hours begin at 6:30 a.m. Eastern Time, while after-hours trading closes at 8:00 p.m. Eastern Time. The bond markets tend to be open a bit longer from 8:00 a.m. Eastern Time to 5:00 p.m. Eastern Time. Futures market hours vary widely based on the exchange and commodity—traders should see the exchanges’ websites for more details.
The most common market holidays include:
- New Year’s Day
- Martin Luther King Jr. Day
- Washington’s Birthday
- Good Friday
- Memorial Day
- Labor Day
- Thanksgiving Day
The closing price is the price of the final trade before the close of the trading session. These prices are important because they are used to create traditional line stock charts, as well as when calculating moving averages and other technical indicators.
Since closing prices are widely followed, they may be manipulated by fraudulent traders to make the appearance of a rally. This practice, known as “high close” is especially prevalent with micro-cap stocks that have limited liquidity since less dollar volume is needed to move the price higher.
Traders should be wary of using closing prices as a gauge of micro-cap and small-cap stock successes and look at candlestick charts and other indicators for added insight.
Many markets have after-hours trading, which enables investors to place orders after the close of the trading session. While this may be tempting, there are several drawbacks that investors should consider before trading in after-hours sessions.
The primary drawbacks to consider include:
- Limited Liquidity: Fewer traders are active in after-hours trading, which means that there’s less liquidity, inefficient pricing, and higher bid-ask spreads.
- Professional Competition: Most after-hours traders are professional traders working for hedge funds or investment banks, which makes it hard to compete.
- No Guarantees: There is no guarantee that after-hours prices reflect a security’s opening price the next day since they are entirely different sessions.
Most traders should stay away from after-hours trading unless they have a lot of experience and a compelling reason to trade after the close.