Why You Should Care About Closing Price When Trading?
Closing Price Definition
The closing price is the final price at which an asset was exchanged on a specific day. An auction is frequently used to decide this price.
Certain financial assets can only be traded during specific times of the day. For instance, it is customary only to trade stocks and indexes while the relevant markets are open. This is because their closing prices represent the asset’s current level until it may be traded again.
You may trade US equities during extended hours via some providers, like IG, allowing you to do so after the exchange has closed. When the deal shuts, the price is still reflected as the closing price.
On the other hand, The stock price after the market closes may be impacted by dividends or stock splits; these are considered in the Adjusted Closing Price. Although in much lower quantities, most stocks and other financial instruments are traded after business hours. So, the closing price of any security is frequently different from the price at which it is traded after business hours.
Investors should think about the following while examining closing prices:
- Is the closing price determined by the price set during the regular trading session on the security’s principal market?
- Does the closing price, as of the close of the regular trading session at 4:00 p.m., represent the final deal recorded over the consolidated tape? Central Time?
- Is the closing price consistent with the last deal that was recorded on the consolidated tape during after-hours trading?
Where can I see the final deals?
Some financial media and market data providers consider the final deal in these after-hours markets as the closing price for the day. Several markets allow after-hours trading. Some people utilize the 4:00 p.m. show pricing for after-hours trading separately from the closing price.
The Consolidated Tape Association, which serves as the primary distributor of transaction prices for exchange-traded securities, adopted a mechanism to standardize closing prices to reduce misunderstanding. Under this arrangement, the closing price for equities during regular trading hours is 4:00 p.m.
However, different media outlets and market data providers can continue to report the closing price for the same stock in different ways. Therefore, it can be unclear when closing prices are reported differently by the media and other parties, mainly when a single, low-volume after-hours deal happens at a price that differs significantly from the 4:00 p.m. closing price. Closing cost. For instance, a company’s online closing price could not match the price displayed on the consolidated tape scrolling at the bottom of a television screen. Or, the investor can learn the following day that the stock opened “up,” even though it opened “down” in comparison to the price at 4:00 p.m. close.
FINAL INSIGHT
Investors can use closing prices as helpful benchmarks to gauge how stock values have changed over time. Even in the 24-hour trading age, every stock and other asset has a closing price, the last price it trades on any given day during regular market hours. Until the start of trading on the next trading day, the closing price is thought to be the most accurate value of a stock or other investment.
