What it means
Exchanges have long used a bell to mark the opening and closing of the trading day. In the past a person would ring it by hand to tell traders on the floor that business was over.
Today the ceremony is often broadcast on television, and it is frequently performed by company executives or guests as a public relations event. The moment matters because of what is recorded.
The closing price, usually the last traded price or an official auction price, is used to value portfolios, calculate daily returns, and report share prices in the news. Funds, banks and analysts often rely on it for the day's official figures.
Trading does not always stop completely. Many markets allow extended trading, sometimes called after-hours trading, in which orders continue to match but with thinner volumes and wider price gaps.
Prices in these sessions can differ from the official close, so people should be clear about which price they are quoting. For a non-finance manager, the closing bell appears in everyday business language.
A company might say that news will be released after the closing bell, so as to give investors time to digest it before the next session. Hearing a phrase such as in the final minutes before the closing bell usually means that trading volumes are higher, as funds adjust their positions.
The nuance is that exchanges around the world close at different times, and the bell is a local event. A fall on one market may be reported hours before another market has even opened.
When comparing performance, check that both prices are taken at the right closing time and in the same currency.
In practice
Real-world examples.
Example
A technology company in San Francisco announces its quarterly results shortly after the closing bell. This gives analysts the evening to study the numbers before the next trading session starts.
Example
A fund manager in Singapore marks her portfolio at the closing price each day. The values are used to calculate the fund's net asset value, which investors see the following morning.
Example
A founder takes her company public and is invited to ring the closing bell. The ceremony is filmed and shared across social media, which helps raise the profile of the business among customers and recruits. Her finance team still checks the closing price that evening, because it becomes the reference point for how the market values the company the next day.
Formula
Calculation
Daily return = (closing price today - closing price yesterday) / closing price yesterday
Suppose a share closed yesterday at $40.00 and closes today, when the closing bell rings, at $41.20. The price change = 41.20 - 40.00 = $1.20. Daily return = 1.20 / 40.00 = 0.03, which is 3%. An investor holding 1,000 shares would see the value of the holding rise by 1,000 x 1.20 = $1,200, from $40,000 to $41,200.Case study
Seen in the real world.
This illustrative story features Lumen Grid, an invented renewable energy company that has just listed its shares. Its chief executive, Tomas, is invited to ring the closing bell on the first day of trading, and the finance team plans the day carefully.
The share price opens at $12.00 after the offering and closes at $13.50, a gain of $1.50 or 12.5%. Tomas knows that headlines will quote the closing price, so the team prepares a short statement for investors and sets up a call after the closing bell for analysts. In this fictional case, the ceremony is a pleasant moment, but the finance director reminds everyone that the real work is delivering results over the long term. She also asks the team to explain to staff that daily share price moves, up or down, say little about the strength of the business.
Watch out
Common mistakes.
- Assuming all trading stops at the closing bell. Many markets have after-hours sessions where prices can still move, although with fewer participants.
- Treating the closing price as a fair value. It is only the last agreed price of the session, and it can be affected by large end-of-day orders.
- Comparing closing prices across markets without adjusting for time zones and currencies. A close in Tokyo and a close in New York happen at very different moments.
Questions
People also ask.
What is the opening bell?
It is the matching signal that marks the start of the regular trading session. Together, the opening and closing bells frame the official trading day.
Why do companies announce news after the closing bell?
It gives investors time to read and think before the next session opens. It can also reduce the chance of sudden price swings in the middle of the day.
Who sets the closing price?
It is usually the last traded price or the result of a closing auction, depending on the exchange's rules. The method is published by each exchange, so check it for the market you use.
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