Opening Cross
Categories: Trading
Ever see the start of a marathon? The starting gun goes off and then everyone is all clumped together at the starting line. The people in the front immediately start running, but if you're stuck in the back, you kind of have to mill around for a minute or two until everyone clears out.
The beginning of a Wall Street trading session is like that as well. Orders set to transact at the open all have to be filled, leading to a lot of activity in the opening stages of the day. On the NASDAQ stock market, this time period is known as the opening cross.
The term relates to the way the market matches orders in this busy part of the day and calculates opening prices. It's how NASDAQ tries to provide transparency and liquidity just before and in the moments surrounding the start of trading.
In marathon terms, it's like the ways race organizers prevent runners from tripping over each other or turning into a violent hair-pulling, foot-stomping mob.
Related or Semi-related Video
Finance: What are At-the-Close Order and...24 Views
Finance a la shmoop.. What are at the close order and at the opening orders
Well simply put they're a way of buying and selling stocks and bonds and [Shmoop video on PC monitor]
they're really a hybrid form of a limit order only instead of limiting the order
of a hundred shares of Mickey D's at 45 bucks or better the "limit"
is time-based that is it is placed a minute or less from the close of the
market like 3:59 p.m. New York time or the open of the market like 9:31 a.m. New
York time got it so why would someone do this kind of limit order well if a [Man discussing limit order]
company that day before had printed what looked like a really good quarter but
upon deep inspection the investor who owned the shares thought otherwise and [Man inspecting company folder]
you know wanted to dump them well then that investor would want to take
advantage of a high opening print and just sell it whatever the price was a
minute or two after the open making the bet that the stock would then trade down
after bigger smarter better analysis was published on the stock itself and then
everyone else went to dump it - so what about an at the close order well kind
of inverse of the same thing here a company's quarter will be announced at [4:28pm shown on digital clock]
4:30 p.m. New York time tons of excitement leading up to it so
"everyone" wants to be long the stock ahead of earnings but you think
earnings will disappoint like you know buy the rumor sell the actual news kind
of vibe so you want to hold the stock until the last minute that day and then
you just give the guidance to sell the stock that last minute of trading or at [Investor sells stock to market]
the close and you're out and now we have arrived at the close of this video... Adios! [Man waving on stage]