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 am Eastern time. The price of the first trade for any listed stock is its daily opening price, and this is an important marker for that day's trading activity, particularly 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 the best opening price considering the orders that accumulated overnight. Typically, a security's opening price is not identical to its prior day closing price. This is because after-hours trading has changed investor valuations or expectations for the security.

Opening Price Deviation

Investor expectations can be changed by corporate announcements or other news events. Corporations issue announcements that may affect the stock price after the market closes. Large-scale natural disasters or man-made disasters, such as wars or terrorist attacks, that occur in after hours may have similar effects on stock prices. When these events occur, some investors may attempt to either buy or sell securities during the after hours.

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 after a sizable price gap at the opening. Another popular strategy is to fade a stock at the open that is showing strong pre-market indications 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 indications, a trader waits for the particular stock to make a move at the open contrary to the rest of the market. The trader then takes a position in the stock in the general direction of the market when momentum and volume of the initial contrary stock price movement begins to diminish. When executed correctly, these are high probability strategies designed to achieve quick small profits.

RELATED TERMS
  1. Open Order

    An open order is an order to buy or sell a security that remains ...
  2. Opening Range

    The highest and lowest prices of a security during the first ...
  3. Open Position

    An open position is any trade that has been established, or entered, ...
  4. Close

    The close is the end of a trading session in financial markets. ...
  5. Trading Session

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

    A term used by many brokerages to represent the opening of a ...
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. Investing

    The Opening Cross: How Nasdaq Stock Prices Are Set

    Learn how the opening cross auction process determines prices of Nasdaq-listed securities at market open to ensure liquidity by matching buyers and sellers.
  4. 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.
  5. 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.
  6. 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.
  7. Trading

    Day trading strategies for beginners

    This day trading tutorial covers general principles, deciding when to buy and sell, common day trading strategies and how to limit losses.
  8. Trading

    Eight Factors That Affect Daily Trades

    Find out which factors can help you squeeze more profit out of each position.
  9. Investing

    Using Open Interest To Find Bull/Bear Signals

    Volume should inform your use of this indicator in confirming trends and reversals.
  10. 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.
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. What is the difference between open interest and volume?

    Learn how to interpret the relationships between price, volume and open interest in the options and futures markets. Read Answer >>
  4. Market operation and its effect on Money Supply

    Understand how open market operations affect the supply of money in the economy and learn the specific ways the Federal Reserve ... Read Answer >>
Hot Definitions
  1. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  2. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  3. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  4. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  5. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  6. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
Trading Center