Why do Stocks Open Higher or Lower than they Closed?
Generally, it happens in both ways, stocks get closed at some price, and then when they open either they open higher or even sometimes lower.
This is because there will be initial trading in the name of pre-session markets will happen between 9:00 am to 9:15 am and during this period the processing of order happens in 3 segments.
Between 9:00 am to 9:08 am: Order placements, collections, and order cancellations can be done.
Between 9:08 am to 9:12 am: Equilibrium of price and execution occurs
Between 9:12 am to 9:15 am: called as buffering and at this time pre-session data will be moved to Live session. After this market will open up at 9:15 am
During this session, the stocks get either sold or bought with various allocation rates of LTP. thus the change in the price of open hour stocks will be different than the earlier days closing.
This the only reason one must close positions in derivatives before the market closing hours, generally, 3:30 pm is market closing time. Brokerage firms start to square off open and margin-based orders around 3:20 pm itself. SO, if you are not willing to hold the stocks for the long term then you must be sure either on selling the same day itself or tomorrow’s markets based confidence to be accurate.
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