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. Open Order

    An open order is an order to buy or sell a security that remains ...
  2. Day Trader

    A investor who attempts to profit by making rapid trades intraday. ...
  3. Close

    The close is the end of a trading session in financial markets. ...
  4. Opening Cross

    A method used by the Nasdaq to determine the opening price for ...
  5. Trading Session

    A trading session is a period of time consisting of one day of ...
  6. Open Position

    In investing, any trade that has been established, or entered, ...
Related Articles
  1. Investing

    How to Predict Where the Market Will Open

    Find out how some indicators help investors predict the likely opening direction of stocks. Also, determine how international markets influence the open.
  2. Trading

    Intro to Open Interest in the Futures Market

    Applied primarily to the futures market, this indicator confirms trends and reversals.
  3. Trading

    Options Trading Volume and Open Interest

    Learn how trading volume and open interest can give you an edge when trading options.
  4. 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.
  5. Trading

    Trading in the Pre- and Post-Market Sessions

    Pre-market and after-hours trading may offer benefits for traders, but there are some potential problems.
  6. Investing

    The Auction Method: How NYSE Stock Prices are Set

    Find out how the New York Stock Exchange (NYSE), runs an auction process known as open outcry to set stock prices during the opening and closing auctions.
  7. Trading

    Best Time(s) of Day, Week & Month to Trade Stocks

    Is 9:00am or Noon better to buy stock? Best day? What about best month? Here's how time affects trading decisions based on daily, weekly and monthly trends
  8. Trading

    Trade Simple, Trade Smart

    Simplicity can be a trader's best friend. Here is a simple day trading strategy which takes advantage of a stock's dynamics.
  9. Trading

    Introduction to Options Types

    Options are often the bread and butter of day traders. Here are some of the more common types of options.
  10. Trading

    An Introduction to Day Trading

    This article takes an objective look at day trading, who does it and how it is done.
RELATED FAQS
  1. How can my stock's price change after-hours? Can I sell the stock at the after-hours ...

    By the time the regular market opens for the next day's trading, stocks may trade at a different price than the previous ... Read Answer >>
  2. Why are the bid and ask quotes usually so far away from each other in after-hours ...

    The low volumes typically traded through after-hours trading systems can create wide bid-ask spreads. Read Answer >>
  3. How can I profit from monitoring open interest?

    Find out more about open interest, what the open interest indicates about an option and its underlying asset and how to profit ... Read Answer >>
  4. 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 >>
  5. What does high open interest tell you about an option?

    Learn about the open interest of options contracts and what a high and a low open interest indicate about the liquidity of ... Read Answer >>
  6. How do I place a buy limit order if I want to buy a stock during an initial public ...

    Learn how to place a buy limit order to buy a stock during an IPO. IPOs can be full of risks, and buy limit orders are one ... Read Answer >>
Hot Definitions
  1. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  2. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  3. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  4. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  6. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
Trading Center