In trading, the term open price or opening price denotes the price at which a security or other asset is sold at the start of trading hours on a trading day. This is the price at which the first trade in a specific asset on a trading day is transacted.
News and events which occur after exchanges close play a key role in determining open prices. For example, if the successful CEO of a listed company passed away on a given night, the resulting uncertainty may encourage many shareholders to sell their shares in the company, leading to a glut in supply. When the stock exchange on which the company is listed opens the next day, the bids from buyers may be much lower than they were on the previous day, so the first trade on the exchange – the open price – may be much lower than the close price on the previous day.
The open price of an asset may also be determined by the previous day’s after-hours trading and the same day’s pre-hours trading. The orders placed to brokers after exchanges have closed for the day and before exchanges open for the day play a significant role in determining open prices. For example, if a great deal of buy orders for a certain stock are placed by investors to brokers between the time the exchange on which it is listed closes and the time it reopens, the strong demand from buyers will result in the stock being transacted at a relatively high price when the exchange opens.
The difference between the open price and the close price of a security on a trading day makes up the daily price change.
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