What Is Closing Price? Definition, How It's Used, and Example

What Is the Closing Price?

The closing price is the raw price or cash value of the last transacted price in a security before the market officially closes for normal trading. It is often the reference point used by investors to compare a stock's performance since the previous day—and closing prices are frequently used to construct line graphs depicting historical price changes over time.

The adjusted closing price factors in anything that might affect the stock price after the market closes, such as dividends or splits. Most stocks and other financial instruments are traded after-hours, although in far smaller volumes. Therefore, the closing price of any security is often different from its after-hours trading price.

Understanding the Closing Price

Closing prices are useful markers for investors to use to assess changes in stock prices over time. Even in the era of 24-hour trading, there is a closing price for any stock or other security, and it is the final price at which it trades during regular market hours on any given day. The closing price is considered the most accurate valuation of a stock or other security until trading resumes on the next trading day.

The closing price on one day can be compared to the closing price on the previous day, 30 days earlier or a year earlier, to measure the changes in market sentiment toward that stock. Most stock news sites allow investors to chart closing prices for a period of years, and typically since the day the company went public.

Pitfalls of the Closing Price

The closing price of any company's stock will not usually reflect any news released by the company that day. Major company announcements related to earnings, stock splits, reverse stock splits, and stock dividends are typically released after the close of the regular trading day in order to give traders a chance to digest the news before acting upon it.

The release of news generally causes a stock's price to move dramatically up or down in after-hours trading. However, after-hours trading involves a fraction of the volume seen during the trading day, making these price swings potentially deceptive. Still, released news can change the opening price of the stock on the following day.

Closing Price vs. Adjusted Closing Price

A particularly dramatic change in price occurs when a company announces a stock split. When the change is made, the price displayed will immediately reflect the split. For example, if a company splits its stock 2-for-1, the last closing price will appear to be cut in half. That change would be reflected in the adjusted closing price.

A reverse stock split causes a similarly dramatic price change. A reverse stock split can be a sign of a company in trouble that is struggling to make its stock price look more robust, or at least keep it above the $1 threshold to prevent it from getting delisted from an exchange. A 1-for-10 reverse stock split, for example, can transform a stock that is trading at 18 cents per share into one that is trading at $1.80 per share.

Example of Closing Prices: Line Graphs

When using line graphs to track the price of a stock, the data point most commonly used is the closing price of the stock. Say that on day one of trading, the stock's price was $30, resulting in a data point at (1, $30). On day two of trading, the stock's price was $35, resulting in a data point at (2, $35). Each data point would be plotted and connected by a line that visually shows the changes in the values of daily closing prices over time.

If the closing prices of the stock increased daily, the line would slope upward and to the right. Conversely, if the price of the stock was steadily decreasing, then the line would slope downward and to the right.