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How are share prices set?

This description is taken from The Intelligent Investor in Australia... However I am not sure if it is accurate - what do you think? Make a comment below, or get in touch via my Contact Form if you have anything to add!

How are share prices set when the stock market opens each day?

Date: 9 Apr 99

How are share prices set when the market opens each day? The opening price of each share or security at the start of each day is really a call auction that matches overlapping orders at a single price (also used by the SEATS trading system to start trades in a new listing). Buy and sell orders are entered in time and price priority and so overlapping orders are matched and the weighted average price is calculated and assigned to all the shares as the opening price. Often at the opening of trade for a new listing buyers and sellers jockey for positions to either maximise the sell price or minimize the entry price. Some 'smart' cookies got it very wrong at the opening of trade for AMP with some very spurious results and some buyers got stuck with stock at well over the $30 mark, perhaps a case of being too quick off the mark.

Posted by tomachi on May 10th, 2009 filed in Economy