If you've ever traded stocks, you know that every minute the market is open there's a price on each stock. That price fluctuates throughout the day. Sometimes the price can swing wildly, so that it's down 2 percent at the beginning of the day and up 3 percent by the end.
Then, at 4 p.m. EST, everything changes. Suddenly, prices stop fluctuating and we're left with the 4 p.m. closing price. The stock, in essence, is in suspended animation.
Then, when the market opens again at 9:30 a.m., the price suddenly shifts, and the fluctuations begin all over again. The opening price may be nearly identical to the closing price from the day before, but it may not. Overnight, some piece of bad news from the company may have sent the price plunging 25 percent lower such that the stock price "gaps down" 25 percent. Or a piece of good news could take the price 10 percent higher, and the stock "gaps up." All of which brings up an interesting question: How does a stock exchange like NASDAQ pick the opening price? How does it make sure that the opening price is fair? In this article, we'll go behind the scenes at NASDAQ and learn about a process known as the "opening cross."