What it means
Before trading begins, investors send orders that wait to be matched, including limit orders that specify the worst acceptable price. The exchange collects these orders and shows indicative information, such as the likely opening price and any imbalance between buyers and sellers.
At the set time the system calculates one price and executes all eligible orders at it. The guiding principle is to choose the price that maximises the number of shares traded.
If buyers want more shares than sellers offer at a given price, the price tends to rise, and the reverse is true if sellers outnumber buyers. The exact tie-breaking rules differ between exchanges, so the rulebook of the venue concerned should be consulted.
A single-price auction has a clear advantage over the first trade of the day. A lone trade can be unrepresentative, especially if it is small or placed in thin conditions.
The cross reflects all the interest that has built up since the previous close, so the result is more reliable. For investors, the opening cross is a useful way to trade at the official opening price.
Some order types are designed to take part only in the cross, and institutional investors with large orders use them to avoid chasing prices through the day. Traders need to submit orders before the cut-off times set by the exchange.
The same auction idea is used at the close of trading, where a closing cross sets the official closing price. That price is then used to value funds, calculate indices and settle many derivative contracts, which is why both crosses attract significant volume.
In practice
Real-world examples.
Example
A pension fund wants to buy 50,000 shares of a large company at the official opening price. It sends an order into the opening cross and receives the shares at the single price set by the auction, without having to trade through the busy first minutes.
Example
A listed software firm releases strong results overnight. Buy orders pile up before the open, the exchange's indicators show a rising imbalance, and the cross sets an opening price well above the previous close.
Example
An index fund needs to rebalance its holdings at the start of the day. The fund manager places orders to take part in the opening cross, and the finance team uses the cross price to value the trades in its daily accounts.
Formula
Calculation
Opening price = the price at which the matched volume (the lesser of eligible buy shares and eligible sell shares) is largest
Suppose the order book holds buy limits of 3,000 shares at $10.10, 2,000 at $10.05 and 1,000 at $10.00, and sell limits of 1,500 shares at $10.00, 2,000 at $10.05 and 3,000 at $10.10. At $10.10, buyers willing to pay that price total 3,000 and sellers willing to accept it total 1,500 + 2,000 + 3,000 = 6,500, so 3,000 shares match. At $10.05, buyers total 3,000 + 2,000 = 5,000 and sellers total 1,500 + 2,000 = 3,500, so 3,500 shares match. At $10.00, buyers total 6,000 and sellers total 1,500, so only 1,500 match. The largest matched volume is 3,500 shares, so the opening cross price is $10.05.Case study
Seen in the real world.
Marlow Trading Desk is a fictional brokerage that handled a large client order to buy 200,000 shares in a mid-sized company. The head trader worried that buying during the volatile first minutes would push the price higher.
He sent a portion of the order into the opening cross instead, and the rest was spread across the day. The cross matched 80,000 shares at a single price only slightly above the previous close, whereas earlier trades in similar conditions had been filled at a wider range of prices.
The illustrative result was a lower average cost for the client and a cleaner record of execution. The desk learned that, for large orders, a single-price auction can be a more orderly way to find liquidity than a rush at the opening bell.
Watch out
Common mistakes.
- Assuming the opening price is just the first trade of the day, when many exchanges set it through a formal auction.
- Submitting an order after the cut-off time and expecting it to join the cross, when late orders usually wait for continuous trading.
- Believing all exchanges run the cross by identical rules, when tie-breaks and order types differ between venues.
Questions
People also ask.
What is the opening cross used for?
It sets the official opening price and allows large amounts of shares to trade at one fair price.
What is an imbalance in an opening cross?
It is the amount by which buy interest exceeds sell interest, or the reverse, at the indicative price, and it signals which way the price may move.
Is there also a closing cross?
Yes, many exchanges run a similar auction at the end of the day to set the official closing price.
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