With investing, the opening price is the current selling price for a security at the time that the exchange opens each trading day. For new stock offerings, the term refers to the initial price per share that is in effect at the beginning of the first day that the new stock is offered for sale on the open market. In some situations, the opening price will also be the price that is established by the first trade of the day, rather than being based on a figure that was already in place when the exchange opened that morning.
There are a number of factors that can influence the opening price of a given security. One of those factors has to do with the rate at which the stock closed the previous day. Depending on the amount of orders or trades that were prepared for execution while the market was closed, that market close price may also be the market open price the next day. However, situations where sudden changes occur in the interim, such as unanticipated changes in the structure of the company issuing the stock, political upheavals, or natural disasters, may drive the value of the security up or down. When this is the case, the market may take those events into consideration and assign an opening price that is very different from the closing price of the previous day.
In situations where no opening price is designated prior to the market opening for the day, the matter is quickly settled when the first trading activity takes place. With this scenario, the price per share that is paid for the first buying or selling activity involving the security also acts as the opening price. This figure establishes the starting point for the trading day and will be used to measure the upward or downward movement of the security during the course of the day.
Investors often seek to anticipate the opening price for a given stock, as a means of identifying the right time to buy and sell shares. For example, investors may be aware of events that will drive the value of a stock downward temporarily, with the downward movement expected to culminate at the beginning of a specific trading day. The investor will then move to purchase shares while the stock is at its lowest point, then sit back and watch the value of the shares steadily increase as the security recovers from the temporary downturn.
