What Is Closing Price?

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Closing price means the last price for which a stock trades during a normal trading session. Regular trading hours for several U.S. markets are from 9:30 a.m. to 4:00 p.m. Eastern Time. The closing price will not represent share splits, cash, or scrip dividends. Instead, the closing price helps traders measure stability and identify critical price levels combined with the open price.

Key Takeaways

  • Closing price means the final price of a security during an end of a normal trading session day on a financial market.The closing price of an asset is very important as it acts as a fundamental yardstick that traders use to measure stability and identify critical price levels and stock performance over time. However, it does not represent share splits, cash, or scrip dividends.A weighted average of the trade prices in the final 30 minutes of the trading session is used to calculate the closing price.

Closing Price Explained

Several exchanges allow after-hours trading, and some financial media and market data suppliers use the latest deal in these after-hours marketplaces as the daily closing price. Others use the price at 4:00 p.m. as the closing price (CP) and display after-hours trading prices separately.

Therefore, to eliminate misunderstanding, the Consolidated Tape Association, the principal distributor of transaction prices for exchange-traded securities, devised a method to standardize closing prices. Hence, this method’s typical session CP for equities is at 4:00 p.m., so each day at 4:00 p.m. Eastern Standard Time (EST), the world’s most famous closing bell, signifies the trading floor’s closing on Wall Street. As soon as the closing bell sounds, the final prices traded become the closing prices of stocks.

After-hours trades do not impact the regular session closing price or high and low. However, it is worth noting that market activity does not stop even after an exchange floor is closed. After-hours trading also happens, although liquidity and volume are lower. It allows investors to respond to overnight news without waiting for the exchange to open. It is also perfect for those unable to trade throughout the day.

Albeit, different market data sources may report a stock’s CP differently. This mismatch can cause ambiguity. For instance, the CP reported on a firm’s website may differ from the price displayed at the bottom of the market news channel screen. The following day, the trader may read that the share opened “up” despite opening “down” relative to the regular market close.

Adjusted Closing Price

We have discussed why closing stock prices are beneficial; they can provide a decent indication of market mood. However, it is essential to note that stock market closing prices do not account for company events such as mergers, acquisitions, dividends, and stock splits. Hence, “adjusted closing price” comes into play. It reflects company actions and payouts before the opening bell the following day.

One such corporate move is a stock split; it makes a company’s share price more appealing to investors. For instance, if the board of directors decides to split the shares four-for-one, the share price will get divided by four. Therefore, if the shares ended the day before the stock split at £20 per share, the adjusted closing price following the stock split would be £5.

How To Calculate Closing Price

A share’s closing price calculation is the price at which trading ceased after the trading day. Hence, a weighted average of the trade prices in the final 30 minutes of the trading session is used for calculating the CP of any securities.

It can be computed using the following steps:

#1: Compute the price at which a stock trades between 3:00 and 3:30 p.m. Find the number of shares traded at each price.

#2: Multiply the price by the quantity to determine the ‘Total Trading Value/ Product.’

#3: Calculate the total number of traded shares (Total Volume).

#4: Determine the Close Price using the following formula:

Close price = Total Trading Value / Total volume

Example

Let us consider the following example of stock ‘xyz’ to understand closing prices better. First, we will consider the trading volume (quantity of shares) and the trading price of such volume to calculate the share’s closing price.

The closing price of stock ‘xyz’ in the above example is not Rs. 56 as per the last trade. In this case, the CP will be calculated by dividing the total product (Trading volume* trading price) by the total trading volume. This will result in a CP of Rs. 49 (2508/51)

Usage And Importance Of Closing Price

The closing stock price is a crucial statistic for every stock as market factors are derived from this price. For example, the Close Prices at the beginning and end of a certain time are compared to determine the stock performance throughout that period.

The daily market mood for investment is gauged by comparing the CP to the afternoon price of the previous day. For example, the stock price will likely drop if a corporation releases negative updates in the morning. Thus, after some commotions have subsided, the market has had a chance to process the news. However, the market’s CP will more accurately reflect the mood.

Closing stock prices are significant because comparing the closing prices of securities across different days or months can assist investors in understanding changes in a security’s worth over a certain period. In addition, when examining the past returns of an investment, closing prices are often beneficial.

Closing Price vs. Last Traded Price

Thus far, we have discussed closing prices and amended closing prices. Note, however, that there is frequently a difference between a day’s CP and the last price exchanged.

This can occur for a variety of reasons. For example, many equities move heavily towards the end of the trading day, and it might take several minutes to review the orders and determine which was the last transaction. Occasionally, these transactions are posted up to a half-hour after the closing bell.

Also, it is worth noting that the CP you get online is frequently a ‘consolidated quotation,’ derived from a technology that pulls deals from all stock exchanges and combines them into a single data stream.

Also, remember that the ‘last price’ you see might be the final transaction in after-hours trading, so it could be significantly different from the stock’s CP.

This has been a guide to Closing Price & its definition. Here, we explain its importance, calculation, example, adjusted price & difference with the last traded price. You may learn more from the following articles –

In the market, closing price stock is the final traded price of a security before the market shuts. A stock’s closing price is its price at the end of trading hours.

The Closing Price aids the investor in understanding the stock market’s attitude over time. Hence, it is the most singular matrix for determining stock value until trading restarts the next day. Moreover, when paired with the open price, these price levels provide crucial reference points for measuring strength and identifying key price levels to validate trade ideas or biases.

The stock’s closing price is determined based on the weighted average price of all deals in the last half-hour of trading; this is accomplished by dividing the total product by the total number of shares traded in the previous half-hour.

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