What is closing?
- When traders or investors talk about closing, they do not mean stopping their businesses. Instead, the term closing refers to the end of trading hours of the stock market.
- While closing hours vary with the location where the stock market is operating, usually closing means the end of the New York Stock Exchange (NYSE) daily session.
- The NYSE accepts and processes trades from 9:30 a.m. to 4:00 p.m. EST.
Why is the market closing important?
There are two reasons why the close is essential:
- Usually, a lot of news and important events happen during trading hours. The fact that the stock market closes means that most significant developments have a window to move stock prices.
- People look at charts after hours so that the closing prices can give essential insight into the profitability of a company.
Money never sleeps, but investors do
People are not robots. We all need to rest and recharge after a long day at work or at school. You can only work or study for so many hours in a day before you need to rest. Prolonged activity diminishes focus and increases the risk of making mistakes, which can lead to less profit and significant loss.
Traders and investors are just like us, they also need to recuperate. The stock market has specific hours and operates only between 9:30 a.m. to 4:30 p.m. ET which limits trading and investing activity. The stock market closes on the weekends too.
On the other hand, people want their investments to grow. Whether people are saving for their retirement, an extended vacation or for buying a house and some property, investors prefer to know what is happening to their investments. Shareholders want to have updates on the value of their stock portfolios, but most people do not have the time or patience to stare at a screen of green and red numbers and charts all day.
Only a few people trade actively every day. Most people will just take a look at their investment portfolio weekly or monthly. Knowing the price of your stock at the close of the market gives you an excellent marker for the performance of your stock that day, and in many cases is all the average investor needs to know.
Due to how widely connected the world is these days, any international event may move stock prices. There is a big chance that important events happen outside market hours, and the price may rise or fall the second the stock market opens.
The value of closing
The closing price is immensely critical, especially for people who invest in mutual funds and other financial instruments like variable annuities and indices (that’s the plural of “index”). Mutual funds and indices function like a basket of stocks and other assets like debt and bonds. It is difficult to know how much a mutual fund is worth at any given moment. Most, if not all, financial advisors and consultants would use the value of the close as the standard for reporting to clients and investors how much the amount moved from one day to another.
The closing price is also deeply ingrained in a very subtle way. You can find the closing prices of shares in the ticker, which is the stream of companies and costs in red, green and black during evening news that shows how much the price moved. Due to its finality, so to speak, the closing price is regarded as an essential indicator of how strong or weak a company is relative to its share price.
By knowing the price of a share or stock at the close of the market, you can formulate a plan if you want to purchase or sell a share and at what price. The closing is key to profitability, and any investor worth his salt should always keep a sharp eye on closing prices.