Stock Markets Exposed

Why does stocks open in a strong decline after a bad news if the stock market was closed?

For example, one stock closes at $30.00 on Monday, then Monday night, when Nasdaq is closed, the company releases bad news. Tuesday when the stock market opens the stock already opens at $23. A down gap. But how, if the stock market was closed? How that the Gap was created?

Public Comments

1. people dumped the stock over the weekend so as soon as the market opens, those transactions are made
2. There are many reason. The stock is probably traded around the world during the non market hours in the US. The stock will trade as a ADR (American Depository Receipts) in other exchanges. ADR's are basically the stocks equivalent trading on another exchange. A company out there has purchased stock to create these ADRs to trade in that country. Also there is extended hours trading nightly and pre market trading prior to market open each morning. The stock will trade heavily during these hours if news has been release overnight. Further, if someone who hear the bad news sells their stock at "market" and the highest bid price (highest price someone is willing to buy at) is only $23 at the open the trade will execute at $23.00
3. You can sell your shares after the Market closes and before the Market opens.
4. Orders are placed before the open. So it creates a backlog.
5. If there's no buyers at $30, then the price goes down. Just because a stock is trading at $30 at close is no guarantee that it will be trading at the same price the next day. You can't sell a stock if there are no buyers at that price.
6. The Stock Market works like an auction. And the current price of the stock is simply the price of its latest transaction. Just because people bought the stock at $30 last time doesn't mean that they will buy it at the same price next time. In an auction, the price keeps going down until a willing buyer is found. And the price at which this stock is sold then becomes the current price of the stock. A gap is created when no willing buyers can be found at the last transaction price. And sellers keep bringing down their asking price until a willing buyer is found. The price of the stock in this latest transaction then becomes the new price of the stock.