The closing price of a stock one day and its opening price the next day are often different. That's because the stock market doesn't work like a supermarket. There's no label on the shelf telling you how much a share of stock will cost. Prices are constantly in motion -- even when the markets are closed.
How Prices Work
At the grocery store, prices are marked right there on the shelf. If peaches are 69 cents a can, then that's what you'll pay for them. But in the stock market, prices are fluid. The price quoted for a stock at any point is simply the price paid the last time that stock changed hands. There's no guarantee that you'll get that price if you place an order to buy or sell shares. Stock exchanges match buyers and sellers, and prices are set through the interplay of what buyers are willing to pay and what sellers are willing to accept.
The listed closing price is the last price anyone paid for a share of that stock during the business hours of the exchange where the stock trades. The major U.S. exchanges are generally open from 9:30 a.m. to 4 p.m. Eastern time. The closing price is just a snapshot of the stock at 4 p.m. This price does carry a lot of psychological weight, as it's often interpreted as the market's "final say" on a stock for the day. But it's really no different than a price from any other time of day, be it 10 a.m., noon, 2 p.m. or whenever. The exchange doesn't put a label on a shelf that locks in the price until the following morning at 9:30.
Trading in stocks continues even after exchanges close. Investors can place "after-hours" buy and sell orders. Depending on the system, these orders either are filled immediately or are queued up to be filled when the market opens. Those trades will affect the next day's opening price. Meanwhile, investors are watching for news and events that could affect stock prices. Many companies, for example, wait until after the markets close to make major announcements.
Just as the closing price is the price paid in the last transaction of a business day, the opening price is the price from the first transaction of a business day. That price can be influenced by anything that has happened since the previous close. Imagine a company whose stock closes one day at $20 a share. That night, news breaks that the company has perpetrated a massive accounting fraud and is in dire financial shape. When the market opens the next day, no one is going to pay $20 a share for the stock, because it's not worth that. If the most anyone is willing to pay is $2 a share, then the stock will open at $2.
- Securities and Exchange Commission: Closing Price
- "Wall Street Journal Guide to Understanding Money and Investing"; Kenneth M. Morris and Virginia B. Morris
- Investing Online Resource Center: About After-Hours Trading
- Spencer Platt/Getty Images News/Getty Images