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Show In finance, a previous close is a term that is used to refer to the price of a security before the close of the last market. For example, the last price at which a certain stock was traded on a Monday would be referred to as the previous close until the market reopened on Tuesday morning. Additionally, the price at which a stock was traded on a Friday before the closing bell would be the previous close until the market reopened on Monday morning. A previous close does not only refer to the price of stocks. It applies to other kinds of securities as well including futures, commodities, and bonds. The previous close is often used as a way to compare the price of a security from one day to the next. Although a security may be traded at a number of prices during the day, the closing price is used in order to make comparisons on a day-to-day business. It is the metric that is used by many financial analysts and financial news programs to discuss the events within a day's stock market and to make preparations for, or even forecasts for, the following day. Drastic shifts in a security's previous close are often closely monitored and speculated on, especially if the security is one that is popular among stock analysts and investors. Sometimes the previous close is manipulated by investors to make the stock look as though it did better during a given day than it really did. This is done by purchasing a small amount of the security at an artificially high price. As such, the previous close will look artificially high and may attract the attention of other investors, which is called a "high close." In order to create a high close, the security must be purchased at the artificially high price in the very last minutes of trading before the closing bell. Otherwise, another purchase of the security may be made at a more reasonable price, making the previous close on the security closer to the lower range of prices at which it was traded during the course of the entire day. Securities are still traded after the closing bell. As such a previous close may not reflect what happens after the closing bell. However, it is still used as a helpful metric to discuss the events within a day's market and prepare for the following day. Let us first understand the meaning of closing price, the opening price, and how they are calculated for a stock. Closing Price The closing price is a stock's trading price at the end of a trading day. This makes it the most recent price of a stock until the next trading session. For equities, the normal market timing is from 9:15 AM to 3:30 PM. The closing price is calculated as the weighted average price of the last 30 minutes, i.e. from 3:00 PM to 3:30 PM in case of equity. Calculation of closing price is explained below with an example : So from the above example, it can be seen that the closing price is Rs 51.48/- which is different from the last traded price at 3:30 PM, i.e. Rs.54/-. To know more about closing price and how it is different from Last Traded Price(LTP), click here. Opening Price The opening price is the price at which a stock first trades upon the opening of an exchange on a trading day. For equities, the normal market timing is from 9.15 am to 3.30 pm. But, the exchange starts collecting orders from people at 9.00 am till 9.08 am called as pre-market window, during this time, they collect the orders from the public and during the next 7 minutes before markets open, they match these orders to decide at what price the stock will open for the day at 9:15. To know more about market timings, click here. So as you can see from the above explanation, there's a pre-market window with which the opening price is calculated, where depending upon the demand and supply of a stock, the opening price may be different from its previous day closing price. In the hours between the closing price and the next trading day's opening price, several factors can affect the price of a particular stock. Some of the factors are : After market order(AMO) AMO has a major effect on the stock price between the closing and opening price because it means that orders are being placed even after the markets are closed, which results in changing the prices of stocks. To know more about After market orders(AMO), click here. News about a company News about a company can be released while the market is closed, changing what investors are prepared to pay to own a company's share and changing the price of the company's stock without any trades occurring. In most cases, Positive news would increase the stock price, whereas negative news would decrease the stock price.
"Closing price" generally refers to the last price at which a stock trades during a regular trading session. For many U.S. markets, regular trading sessions run from 9:30 a.m. to 4:00 p.m. Eastern Time. A number of markets offer after-hours trading and some financial publications and market data vendors use the last trade in these after-hours markets as the closing price for the day. Others use the 4:00 p.m. price as the closing price and display prices for after-hours trading separately. To avoid confusion, the central distributor of transaction prices for exchange-traded securities – the Consolidated Tape Association – implemented a system designed to make closing prices uniform. Under this system, the regular session closing price for stocks is the 4:00 p.m. price. Any trades that take place during after-hours trading sessions are "tagged" with the letter "T" on the consolidated tape and will not affect the regular session closing price or the regular session high and low prices. The Nasdaq Stock Market uses similar conventions. However, the closing price for the same stock may continue to be reported differently by various media and market data vendors. This discrepancy in how the media and others report closing prices can cause confusion – especially when a single, low-volume after-hours trade occurs at a price that is substantially different from the 4:00 p.m. closing price. For example, the closing price listed on a company's website could be different from the price shown on the consolidated tape flashing across the bottom of a television screen. Or, the next day, the investor might hear that the stock opened "up" even though it opened "down" compared with the price at the 4:00 p.m. close. Investors who check closing prices may want to consider the following: Is the closing price based on the regular trading session price established on the security's primary market? Does the closing price reflect the last trade reported over the consolidated tape as of the close of the regular trading session at 4:00 p.m. Eastern Time? Does the closing price reflect the last trade reported over the consolidated tape in after-hours trading?
Topics Covered The closing price of a stock is the price at which the share closes at the end of trading hours of the stock market. It is not to be confused with the last trading price or LTP, which is the final price at which the stock was traded before the markets closed. In simple terms, the closing price is the weighted average of all prices during the last 30 minutes of the trading hours. Whereas the previous trading price is the final price at which the stock was traded before the market closed for the day. How is the closing price calculated?There are two primary stock markets in India—BSE (formerly Bombay Stock Exchange) and National Securities Exchange of India (NSE). Both markets close trading at 3:30 PM. To know the closing price of a stock, you need to know all the prices at which it was traded between 3 PM and 3:30 PM. Here’s an example for calculating the closing price of stock A. At 3 PM, the two shares of stock A were traded at Rs. 10 a share. At 3:10 PM, two more shares were traded at Rs. 12. At 3:20 PM one share of stock A was trading at Rs. 11. At 3:30 PM the price went up to Rs. 20 a share and two shares were traded. Now to calculate the closing price, first multiply the number of shares to the price at the particular time. So, at 3 PM the total product is Rs. 20 (two shares multiplied by Rs. 10), at 3:10 PM the total is Rs. 24, at 3:20 PM it is Rs. 11 and at 3:30 PM it is Rs. 40. Add these values to find out the total product traded in the last 30 minutes: Rs. 95. The closing price is calculated by dividing the total product by the total number of shares traded during the 30 minutes. So your closing price is Rs 13.57 (Rs. 95/7). You last trading price is, however, Rs 20, which is the price at which the stock was traded last. Can closing price and last trading price be the same?As explained above, the closing price and last trading price are quite different. However, in one particular instance, the closing price can be the same as the previous trading price. If no shares of a particular stock are traded in the last 30 minutes of the market, the last trading price becomes the closing price. Let us retake the previous example to understand it better. At 2 PM, three shares of stock A were traded at Rs 10. At 2:45 PM, five shares of stock A were traded at Rs 20. No more shares are traded until the market closes at 3:30 PM. In this case, the closing price and last trading price will be Rs 20. Why is closing price important?If you are a market watcher, the closing price is as essential for you as the opening price, which is the price at which the stock opens in the market. The closing price of a stock is a reference point for you to understand how a share behaves. You can study the closing price of price over some time, such as a month or even a year. Doing so will help you determine how well the stock has done over time and make an informed investment decision. Conclusion The closing price of stocks is essential not just to investors. Financial institutions also observe closing prices and make policy decisions. If you are planning to diversify your investment portfolio, learn to analyse the closing price and reap the rewards. |