What it means
Exchanges run set trading hours, and the opening price is the price of the first trade of the day. Many exchanges use an opening auction, which collects buy and sell orders before the session starts and finds the price that matches the most volume.
This gives a more orderly start than random individual trades. News and events that happen when the market is closed, such as earnings reports or economic data, are often reflected in the open.
If the price at the open is notably different from the previous close, the difference is called a gap. A gap up shows that buyers were more eager overnight, and a gap down shows the opposite.
The opening period is typically busy and volatile. Many orders have built up overnight and are executed at once, and spreads between buying and selling prices can be wider than usual.
Cautious investors sometimes wait a short time after the open before trading, to let the price settle. The word also has other uses in finance.
An open order is one that has not yet been filled or cancelled, an open position is a trade that has not been closed, and an open market is one without barriers to participation. The context shows which meaning applies, and this entry focuses on the market open.
The opening price appears in the standard summary of a trading day alongside the high, low, close and volume. Analysts use these figures in charts and technical analysis.
Businesses with listed shares also watch it, since the opening price can affect employee share schemes and the timing of announcements. Different asset classes have their own versions of the open.
Equity exchanges have a defined start time and an opening auction, while foreign exchange trades around the clock and has no single opening price, and futures markets may open in several time zones. A business reading a price report should check which opening convention applies before comparing figures across markets.
In practice
Real-world examples.
Example
A company publishes strong results after the close. The next morning its shares open 6% above the previous close at $42.40, up from $40.00. A fund manager with 50,000 shares sees an instant gain of $120,000 before the first trade of the day.
Example
A retail investor places a market order before the session starts. The order is filled at the opening auction price, which is higher than yesterday's close. She learns to use limit orders to control the price she pays.
Example
A treasury analyst reviews a share buyback programme and decides not to place orders in the first 15 minutes of trading. She finds that spreads are wide at the open and that prices settle after the initial rush.
Formula
Calculation
Gap percentage = (opening price - previous closing price) / previous closing price x 100
Suppose a share closed yesterday at $50.00 and opens today at $51.50 after good earnings news.
Gap = 51.50 - 50.00 = $1.50.
Gap percentage = 1.50 / 50.00 x 100 = 3.0%.
An investor holding 1,000 shares sees a paper gain at the open of 1,000 x 1.50 = $1,500, which could grow or shrink as the day goes on.Case study
Seen in the real world.
Brookhaven Pharma is an illustrative, fictional listed company that announced the results of a clinical trial after the market closed. The previous closing price was $80.00.
Overnight, news websites reported the trial had failed, and the next morning the opening price was $62.00, a gap of 22.5% below the close. The company's treasurer, who had planned a share buyback that morning, paused the programme.
By the end of the day, the share had recovered to $66.00. The treasurer later reviewed the policy and decided that buybacks should not run on days of major announcements. The illustrative lesson is that the open reflects a burst of reaction to news, and it is often not a stable guide to the price over the rest of the day.
Watch out
Common mistakes.
- Assuming the opening price equals the previous close, when overnight news often causes a gap.
- Placing large market orders at the open, where spreads are wide and prices can swing sharply.
- Treating the open as the day's trend, when prices frequently reverse after the first minutes.
Questions
People also ask.
What is the opening price?
It is the price of the first trade of the day, often set by an opening auction that matches buy and sell orders.
What is a gap at the open?
It is the difference between the previous close and the opening price, which arises when news or events change the view of value overnight.
What else can open mean?
It can describe an open order, an open position or an open market, so the context determines the meaning.
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