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 release a bad news, and Tuesday when the stock market opens the stock already opens at $23. But how, if the stock market was closed?

Public Comments

1. Through the byzantine process of after-hours trading, where people put in orders for trades when the market is closed. OK, maybe it isn't that byzantine, I just don't know how it actually functions. I just know it does.
2. This is a fairly complex process, however the easiest way to understand is: You have a bushel of apples as do 1000 other people, overnight all of those apples started to go bad (they weren't bad, they just appeared to be heading that direction) All of you at the same time take those apples to the market to sell them. (All of you holding these bushels of apples are waiting at the doors of the market before the market has even opened) The man at the market that buys apples will gladly buy them, however he needs to be able to sell them to someone else so he has to lower his sales price so that someone else will take the risk and buy those apples from him. So obviously he will only be willing to buy them from you if he can reduce the price at which he buys them and sell then them to someone else for a small profit. He has to balance the market with supply and demand. I know it's a long and boring story, but hopefully it helps to understand how this happens.
3. It's called a gap down. The price is whatever the seller and buyer agree upon. Before the bad news, the sellers wanted $30.00. After the bad news, they want out - at any price. Some shrewd operators or bottom fishers offer them $23.00. They take it. Just like if your house is hit by a hurricane it won't appraise at the same level as the day before.