Closing price definition
Closing price meaning
The meaning of the word ‘closing price’ depends on the industry in which this term is used. It is common in the financial world but is also used in the real estate industry. For instance, in finance, the closing price denotes the price at which the last transaction has been executed before the exchange is closed. In the real estate industry, the closing price is the price at which the property has been bought or sold i.e. the closing price is the price paid by the buyer.
What is closing price?
The closing price is the last price of the stock trading on a specific exchange or market. The closing price is important for investors and financial institutions when they analyze the performance of a stock over a predefined period. Investors develop trading strategies based on a stock’s closing price. The closing price trading strategy is preferred by investors because it enables them to avoid any intraday volatility of a stock price.
Difference between the closing price and adjusted closing price
The adjusted closing price incorporates actions taken by the company such as stock splits, dividends payouts, additional stock offerings, etc. Let’s say a company chooses to do a stock split. The adjusted closing price will reflect the price after the stock split is performed. For instance, a company with a stock price valued at $30 decides to do a stock split with a ratio of 2 for 1. This would mean that each shareholder would receive two new stocks for each stock owned. After the closing price is adjusted, the new closing price after the stock split would be $15. Hence, the adjusted closing price is now $15, and this will be noted.
Closing price drawback
A major drawback of the closing price is that it does not reflect any news and relevant information published after the exchange or market has closed. This means that stock relevant information is not reflected in the closing price. Companies may make announcements which could have a significant influence on the stock price after the exchange has been closed. This is done so the investors and the market have time to absorb these announcements.