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Defining a Stock’s Closing Price

A stock’s closing price is its final cost per share at the end of the trading day. While this price varies by market and location, the major stock exchanges in the United States close each day at 4 p.m. Eastern Standard Time. Along with the opening price, the closing price is often considered the most important metric for investors, partially because many traders determine their final positions in the last business hour of the trading day.

Key Points:

  • For most purposes, a stock’s closing price is the sale of the day’s last 100 shares before the major U.S. markets close at 4 p.m.
  • This is an important metric for investors since it provides information about a stock’s fluctuation over a specific period.
  • Traders must distinguish between the regular session closing price and the after-hours closing price, which can be substantially different because of the lower trading volume post-close.
  • NASDAQ and the Consolidated Tape Association have developed reporting standards to reduce trader confusion and provide consistency.
  • Investors use the closing price in a variety of strategies. For example, it can confirm trends, be used to calculate the moving average indicator, and illustrate a breakout.
  • A stock’s closing price is influenced by diverse factors, including but not limited to the actions of institutional investors and short-term speculators, major industry and market news, and price manipulation.

What Is a Stock’s Closing Price?

The markets and industry publications officially define a stock’s closing price as the trading price of the final lot of 100 shares when the bell rings to mark the end of the day. Often, investors use this price as a benchmark to track the rise and fall of an asset’s value over time. Before trading became primarily electronic, newspapers often only printed the stock’s closing price.

After-hours trading complicates matters a bit, so when you use this metric it’s important to understand whether you are looking at the true closing price or the after-hours price. Because fewer trades take place after the closing bell, investors should not consider an after-hours price a reflection of the real stock value.

Most traders consider the stock’s opening and closing price more important than its highs and lows throughout the day. In fact, they often refer to these intraday price changes as ‘noise’ that does not accurately reflect the stock’s value.

Reporting Standards for Stock Closing Prices

The Consolidated Tape Association (CTA) is the official reporter of exchange-traded transaction prices. This group has created a standardized system to report closing prices in which the 4 p.m. price is listed as the regular session closing price. CTA trades that occur after-hours appear on the report with the letter ‘T.’ These trades do not change the high, low, and closing prices for the regular session.

NASDAQ has also adopted these conventions, but other exchanges and news sources may report closing prices differently. When the after-hours trading price shows a significant change from the closing price, these discrepancies can lead to confusion for investors.

Determining the Closing Price

If you’re seeking the closing price for a particular stock, make sure you’re looking at data from the regular primary market for that asset. Usually, you’ll be looking at the security’s price at 4 p.m. EST. Be aware of indicators that the price reported is actually from after-hours options trading, such as the T mark or a later timestamp. In general, when a news source refers to a gain or loss from the prior day, they are using the closing price as the basis for comparison.

Traders who regularly track a stock’s closing price with technical analysis typically use candlestick charts. These financial charts indicate price movement, with each ‘candlestick’ bar representing a single day and an entire chart spanning a week, month, or longer. Candlestick charts indicate a stock’s closing price as well as a wealth of other information that investors use to make buy and sell decisions.

Using the Closing Price

You can compare a stock’s current closing price to its closing price at any point in the past to determine how its value has changed over time. Investment news resources provide charts that track a stock’s closing price for every day since it went public. For exchange-traded funds, investors should look at the closing price as well as the intraday prices to estimate fair value.

Traders can glean a startling amount of information from the stock’s trading price, including:

  • Strength of and confidence in a particular security, illustrated by a closing price close to that day’s peak price.
  • The weakness of a security, reflected by a selloff and resulting price drop at the end of the day.
  • The momentum of a market trend, signaled by whether a high or low price rebounds before market close.
  • Calculation of the moving average indicator, a trading chart tool that removes noise to more clearly display a trend.
  • Validate a breakout or breakdown to guide trading decisions.

Investors who use technical analysis rely on opening and closing prices to create many types of charts. They look for patterns that can predict a trend turnaround. They also draw lines of support and resistance that indicate the trend of a market or asset. The resistance line indicates the current ceiling of a particular asset (usually on a weekly chart), while the support line represents its nadir over that time frame. Opening and closing prices are the most important aspect of defining this key metric.

Understanding Factors That Influence the Closing Price

Experienced traders begin to develop a sense of the many potential impacts on a stock’s closing price. These include:

The Impact of Major News

Image via Flickr by (Mick Baker)rooster

Keep in mind that public companies usually make significant announcements that can affect their stock prices, such as information about dividends, stock splits, and earnings, after the end of the trading day. This situation can result in a dramatic but fleeting change in the stock price overnight.

For example, an after-hours announcement about a stock split will immediately result in a dramatic price change. A two-for-one stock split would halve the stock’s price, and the resulting value is known as the adjusted closing price.

A reverse stock split has the opposite effect. It could be a sign that a company is trying to bolster its stock price to appear healthier to potential investors. In a one-for-two split, the stock’s adjusted closing price will be double its regular closing price.

Institutional Investor Actions

Brokerage firms, mutual funds, and other institutional investors represent approximately 75% of each day’s trading volume. These firms usually move to their final trading position in the last hour of the day. A major shift just before closing signifies the market’s overall mood about a particular asset. With such a larger trading volume, these investors can really sway a stock price.

Short-Term Trading

Many investors, sometimes called speculators, use a technique called short-selling to profit on a dropping stock. With this method, the trader will borrow shares of the asset and sell them at the current high price, then buy them back after the price drops to repay the loan. This strategy is high-risk because the trader could incur an unlimited loss if the stock price goes up instead of down after they sell the original shares. If a stock is ripe for speculation, analysis will uncover a daily closing price near the asset’s highest point for that day.

Price Manipulation

Some traders try to influence the direction of a stock to suit their strategy, either by artificially boosting the price or causing it to decrease. You can detect manipulation when you notice several smaller trades just before closing or a sudden, unexpected increase in a stock that previously displayed poor performance.

I f you’re just starting to look at stock data to inform your trading strategy, start by reviewing the stock’s closing price for your target assets. Look at different time periods to get a sense of how that stock has grown and changed over time.

 

Author:Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of RagingBull.com and the RagingBull.com Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

When and How to Sell on a Limit Order

L imit orders help you control how much you earn on a trade. Many experienced traders consider limit orders invaluable tools for success. Let’s explore how to sell on a limit order.

Key Takeaways:

  • Limit orders let you buy or sell a stock only when it gets to a price you determine in advance.
  • When you sell on a limit order, you can protect yourself by ensuring your trade won’t actually execute unless you get the price you want.
  • However, a limit order can block you from additional potential profit if a stock price rises higher than you expect.

What Is a Limit Order?

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You can use a limit order to either buy or sell a stock once it reaches a price you determine in advance. If you’re using a buy limit order, that will execute the trade at the set price or lower. If you’re using a sell limit order, that will execute the trade at the set price or higher. In other words, a limit order only trades the stock at the given price or better than that price. You can set a limit order indefinitely, or you can set one with an expiration date.

Keep in mind a limit order won’t always execute. Your trade only goes through if the market price of the stock you want to trade reaches or improves upon the price you set in the limit order. If the stock never ends up getting to that price, the order will not execute. The order also might not execute if the stock price doesn’t remain at the right level for a long enough time.

Limit Orders vs. Market Orders

When you place an order to either buy or sell a stock, you’ll encounter two main execution possibilities for price. You’ll either place your order ‘at market’ or ‘at limit.’

A market order is a transaction that is meant to be executed as soon as possible using the present, or market, price. A limit order, on the other hand, sets a minimum or maximum price at which you’re willing to sell or buy.

You can think of limit orders like negotiations. With a market order, you see the price and agree to pay that price. With a limit order, you refuse to finalize your deal unless your price is met.

Here’s another way to compare the two types of orders: Market orders deal with an order’s execution, making the security’s price a secondary consideration to the speed of completing a trade. Limit orders deal instead with price, and if the value of a security sits outside the parameters you put forth in your order, the transaction won’t occur.

Common reasons to choose a market order include:

  • You want to get a fast execution, no matter the cost.
  • You want to trade stock that’s highly liquid with a narrow bid-ask spread (usually a penny).
  • You want to only trade a few shares (for instance, fewer than 100 shares).

Common reasons to choose a limit order include:

  • You want to specify the price of a trade, sometimes because it’s very different from the current stock price.
  • You want to trade a stock that’s either illiquid or has a large bid-ask spread (typically more than $0.05).
  • You want to trade a large number of shares (for instance, over 100 shares).

Advantages and Disadvantages of Limit Orders

Limit orders offer a way for you to make sure you don’t miss an opportunity in the market. Some benefits of limit orders include:

  • Ability to capture short-term market fluctuations: You can put in a series of limit orders to sell and buy stocks to take advantage of opportunities that market volatility creates.
  • Access to undervalued stock: If you think you see a stock that’s undervalued, you could decide to purchase the stock and then sell it on a limit order. You would set a limit order to sell the stock once that price goes up as you expect it to do. (The opposite also works: If you think a stock is overpriced, you can place a limit order to purchase shares when the price drops.)
  • Control over your portfolio: Limit orders give you a way to control your portfolio even when you’re not actively monitoring the stock market. You might end up being busy during a time of high market volatility on a given day, but your brokerage will still trigger the trades you want when you have a limit order in place.

Disadvantages of using limit orders exist as well. For example:

  • You can block yourself from making a trade. If you end up setting your sell limit too high (or your buy limit to low), your stock never trades. Let’s say you have a stock trading at $10 per share and you set a limit order to sell if it reaches $15. The stock may move as high as $14 before going back down to $10 per share, but the limit order never executes because the share price never hit $15, even though you still would have made a decent profit.
  • You can lose out on profits if the stock price changes more than you expect. Say you set a sell limit order of that same stock to $15, and this time, the stock price does reach $15. Your order goes through at that point. Then, shortly after, the stock continues to rise to $19 per share. If you set a sell limit too low, you can end up selling your stock too soon and missing out on additional potential gains.
  • Your trade isn’t guaranteed. Even if the share price reached the price you set, the price may change again before your trade can be executed.

How Do You Sell on a Limit Order?

You should take several steps when you want to sell a stock using a limit order:

  1. Research the stock to set your price. Keep in mind that the price you set for the limit order will be higher than the current stock price, so you’ll need to decide how much higher you think the price will rise. You should take a few factors about the stock into consideration when determining the price you want to get for your shares, such as:
  2. Decide the number of shares you want to sell at the desired price. You can choose to sell all of the stock you have in a given company using a limit order. Alternately, you can sell just a portion of your stock so you can stay invested in the company while still converting some of the investment you’ve previously made into cash at your desired price.
  3. Decide how long you want your limit order to stay in effect. You get to determine how long your order remains in effect. Common examples include:
    • Day orders: These orders remain in effect for one trading day only.
    • Good until canceled, or GTC: These orders remain in effect for longer periods.
  4. Initiate a new trade. You can typically do this by contacting your broker or just logging into an online brokerage account. You’ll want to set the trade as a limit option to sell the number of shares you decided to sell at the price that you determine. You should also let your broker know if you want the limit to be set up as GTC or as a day order. Your broker will likely ask for these pieces of information:
    • Transaction type (whether you’re buying or selling).
    • Number of shares.
    • Security you’re buying or selling.
    • Order type (this is how you will specify that you’re placing a limit order, instead of a market order or another type of order).
    • Price.
  5. Check if the limit order was successful. Contact your broker or check your account. Generally, your shares will sell if the market price meets your limit order price — and the price stays at or above the price you set for a long enough period that your trade can be executed. On the other hand, you’ll retain your shares if the price either doesn’t meet the price you set in your limit order or the share price drops down below the price in your order before a trade can be executed.

You’ll want to keep a few warnings in mind if you’re selling on limit. First, there’s no guarantee that limit orders will go through. They definitely won’t be executed if the share price doesn’t reach your set limit. You should also check in with your broker to find out how their fees on limit orders may differ from fees on other types of trades, as many brokers charge more for limit orders than market orders.

A ll in all, limit orders can be very useful (but not foolproof) tools. Limit orders protect you from extreme losses, but that same mechanism can stand in your way of getting unexpected gains. Highly volatile markets are one prime example of when selling with a limit order can make you lose out on additional profits (or, if you’re buying, additional shares) as the limit order can be executed before prices stop rising. However, if you set a price at a point where you can live with the outcome either way, you’ll gain control over the price you receive.

Author:Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of RagingBull.com and the RagingBull.com Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

What Is the Difference Between Shares and Stocks?

I t’s incredibly common to hear the words ‘shares’ and ‘stocks’ used interchangeably. However, there’s actually a subtle difference between the two terms. While both refer to ownership in a company, one determines the percentage of a company you own. Find out more about the difference between shares and stocks.

Key Takeaways:

  • The difference between stocks and shares lies in what each term means for ownership in a company.
  • A company can issue stock. Then, each unit of stock is considered a share.
  • ‘Stock’ is the generic term, while ‘share’ is the specific term.

What Is the Difference Between Stocks and Shares?

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You’ve likely heard (or used) the words ‘shares’ and ‘stocks’ interchangeably. For the most part, that’s completely fine. The difference between stocks and shares usually isn’t significant enough for the usage to matter in most contexts.

Delving into the definitions of both terms will help you understand the subtle difference in when you should use each word.

What Is Stock?

The term ‘stock’ refers to equity ownership in a given company. When you own stock in a company, that makes you an owner of that company. Thus, you have a claim on that company’s profits and assets.

Any stockholder can look forward to a few key benefits. If the company in which you own stock decides to distribute some of its profits as dividends, you’ll get a cut of the profits. Another perk of owning stock is that it gives you the right to vote both for the board of directors and all proposals that the board puts before the company’s stockholders.

Types of Stocks

Financial analysts and investors have pretty much innumerable ways for categorizing stocks. Examples can include:

  • Blue-chips.
  • Financial stocks.
  • Growth stocks.
  • Large-cap stocks.
  • Small-cap stocks.
  • Tech stocks.
  • Value stocks.

The key detail here is that these stock classifications don’t really refer to the stocks themselves, but instead to the companies that issue those stocks. In other words, a blue-chip stock is a stock a big, stable company issues, and a tech stock is just a stock that a technology company issues. Here’s the kicker: The things you think of as ‘types’ of stock, like common stock and preferred stock, aren’t stock types after all. They’re actually types of shares.

What Are Shares?

Shares refer to the individual pieces of ownership you have in a company. Any stockholder’s influence on the company depends on how many shares they own. Look at it this way: If you and your best friend own shares in a company, but you own one share and they have two, you are both considered stockholders and part-owners of that company. However, your best friend owns two times as much of the company than you.

Stockholders are assigned voting rights and dividends on a per-share basis. So, if you get $1 in dividends in the above example, your friend gets $2 in dividends. Likewise, you get one vote for the board, but your best friend gets two.

Types of Shares

Companies can issue a variety of share types. When you’re investing, you’ll need to understand if you’re getting common or preferred shares as well as public or private shares. The class of shares makes a difference, too.

When you see the share price of a company on the ticker, you’re looking at the price of one common share.

Kinds of shares to look out for include:

  • Common shares: Common shares are the type most frequently issued. Common shares are basic shares that a company issues.
  • Preferred shares: While preferred shares are not as common as common shares, they’re not really rare, either. Preferred shares work a lot like bonds since they come with guaranteed dividends while also giving shareholders a priority claim on the assets of a company if the company ends up going out of business. However, preferred shares don’t usually come with special voting rights.
  • Classes of shares: Companies issue different classes of shares at times. These classes typically come with different privileges. For instance, while Class A common stock might come with one vote each, Class B common stock may have ten votes for each share. That’s how founders and their families get to sell stock but still keep control of their company.
  • Public shares: You’ll see public shares listed on a stock market. Investors can fairly easily buy or sell public shares on the market.
  • Private shares: Private shares are more difficult for investors to trade. These shares are not traded on a stock market. As a result, it can be harder to find a potential seller or buyer.

Private companies can sometimes also become public companies. When this occurs, the shares of the company also change from private shares to public shares.

In many cases, this transformation will involve an IPO, or initial public offering. The private company lists shares on a stock market, thereby allowing all kinds of investors to start buying and selling its shares. For example, before Facebook went public, it was difficult for regular investors to buy and sell its stock. Then Facebook had an IPO, and now you can buy or sell Facebook shares on the market.

Understanding the difference between stocks and shares requires a look at ownership in a company. Though both shareholders and stockholders are considered part-owners in a company, the number of shares held will determine the percentage of a company you own. When a company issues stock, each unit of that stock is considered one share.

Key Comparisons Between Stocks and Shares

Now that we have a handle on what stocks and shares really mean individually, let’s dive into some of the key comparisons between the two:

  • Generic vs. specific: ‘Stock’ is a generic term, while ‘share’ is specific. You can talk about an investor investing in stocks in the broader sense, but shares refers to the specific company, i.e. ‘I just bought five shares in Starbucks.’
  • Issuing: A share is always originally issued. The original issue of stock isn’t possible. You can also talk about the way shares are issued, such as at a discount, at a premium, or at par value:
    • At a discount: Shares that are issued below their face value are issued at a discount.
    • At a premium: Shares that are issued at a premium are issued above their face value.
    • At par value: Shares issued at par value are issued at face value, also known as nominal value.
  • Macro vs. micro: Stock is a macro concept, while share is a micro concept. You can’t actually specify a particular investment when talking about stock, but you do mean a specific company when talking about shares. You can think about stock on the industry level and shares on the level of a particular company.
  • Nominal value: A share does have a nominal value. Stock does not.
  • Number: A given share has a distinctive number that distinguishes it from other shares. Stock doesn’t have this number.
  • Partly paid vs. fully paid: Shares can either be partly or fully paid. Stock must always be fully paid.
  • Share transfer: You cannot transfer fractional shares. You can, however, transfer stock in fractions.
  • Size: A share is the smallest piece you can have in the share capital of a company to gain ownership of a company. A bundle of shares a company member has are known collectively as stock.
  • Types: Because stock is a generic term, you can’t use it to talk about types. You can, however, talk about types of shares.

Example of the Difference Between Shares and Stock

All in all, the difference between shares and stock is how you properly use the words. You’re going to use ‘stocks’ when you’re talking about general ownership of companies, while you can use ‘shares’ to talk about ownership of one specific company.

Say you’re out with your buddies talking about your investment plan in general. If you tell them your plan has a collection of stocks, but you don’t make reference to any particular company in that plan, you’re correctly using the word ‘stock.’

If you then go on to talk about the share price performance of one of the companies in which you’ve invested, ‘shares’ is the right term. You can talk about the performance of your Apple shares (for instance) after the announcement of quarterly results as well as the impact of that on your investment plan.

That said, the term ‘stock’ has turned into an American way of referring to shares, so you’re not likely to confuse anyone if you do end up using the two words interchangeably.

T he difference between shares and stocks comes from what they mean for the ownership in a company. While ‘stock’ is a generic term used to refer to an industry overall, ‘share’ can be used to talk about ownership in a specific company.

Author:Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of RagingBull.com and the RagingBull.com Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.