Closing and opening auctions
Also known as: closing auction, opening auction
The opening and closing auctions are the processes exchanges use to set a 's official opening and closing prices each trading day, rather than simply letting the last order of the day or the first order of the morning define the price. In the minutes leading up to the open and the close, the exchange collects buy and sell orders specifically designated for the auction, then calculates a single price that matches the largest possible volume of shares, and executes all the eligible orders at that one price at the designated moment.
This matters because the closing price in particular gets used far beyond the trading day itself. rebalance against it, calculate their from it, and countless performance reports and news headlines quote it as the day's official result. A closing auction concentrates a large amount of trading interest into one moment and one price, which tends to produce a more stable, harder to manipulate reference price than whatever the last random trade happened to be. The opening auction plays a similar role at the start of the day, absorbing the overnight buildup of orders into one orderly price rather than letting the first few trades of the morning whipsaw around.
Investors placing orders around the open or close can use special order types built for these auctions, such as a market-on-close or , which are specifically routed into the auction rather than executed immediately in continuous trading. Volume in the closing auction on a typical day is a significant share of the 's entire , and it tends to spike further on days when are rebalancing.