Definition of opening bell


What is the opening bell?

The opening bell refers to the time a stock exchange opens for its normal daily trading session. The timing and conditions of the opening bell differ from exchange to exchange. Since 1985, the New York Stock Exchange (NYSE) has used the opening bell to start its trading session at 9:30 am ET. On the New York Stock Exchange there is a physical bell and an automatic chime that rings at the beginning of each trading day. On the Nasdaq exchange, where there is no physical trading floor, the opening of the market is known as the opening bell, but it has a symbolic meaning.

Key takeaways

  • The opening bell represents the start of a regular trading session on an exchange.
  • It is largely symbolic, as most trading is electronic and trading is rarely done on a physical trading floor.
  • The opening bell gives exchanges the opportunity to generate news and better market values ​​during an initial public offering.

Understanding the opening bell

The physical trading floors have practically disappeared over the years with the rise of e-commerce. Investors and traders use the term opening bell to describe the opening of a given market. The physical ringing of the opening bell has become a ceremonial event in which dignitaries visiting stock exchanges or companies that are listed on the first day have the honor of ringing the bell.

This has a useful function to draw attention to the trading activities of the day and helps to maintain the interest of investors. For this reason, media companies like CNBC, Fox, and Cheddar, have fixtures in place on the last of the well-known formal and physical trading floors out there, the NYSE. Without these media companies having a place to report on the trading session, the exchange would find it difficult to justify the continued operation of the trading floor, as there is much that is automated anyway. Consequently, the Nasdaq exchange, which was electronic from its inception, has no physical trading floor and has created a media space for the purpose of presenting its opening bell ceremonies.

The first bell was actually a large gong used at the New York Stock Exchange to officially notify brokers and dealers that it was okay to start the price auction work. However, in 1903, the gong was replaced by an electronically operated brass bell. The bell is accompanied by the mallet that is used in conjunction with the closing bell in recognition of 19th Stock calls of the century. The opening and closing bell can be seen every day on the New York Stock Exchange website.

Negotiate before the opening bell

Many exchanges offer pre-market trades that take place before the opening bell. During this time, traders and investors who have access to the extended trading session can trade with each other. But there are no market specialists or market makers during these hours, and trading is done with limit orders only. Therefore, trades must match exactly in terms of size and bid time. This means that operations carried out during these hours may take longer to complete and be less efficient in their prices. As a result, fewer traders participate in such sessions.

One notable exception is the circumstances surrounding earnings announcements. If a company announces its quarterly results before the opening bell, an unusual surge of activity is likely in that particular stock. Aggregate participants rushing to trade based on the new information means that trading at those times can occasionally mimic the speed and efficiency of price action that a regular session could provide. This flurry of activity can also occur sporadically based on the news that breaks through the night or before the opening bell.

While pre-market negotiation has its advantages, there are several important risk factors. Pre-trade trading tends to be less liquid than regular business hours, which means that bid and ask spreads can be wider and price action can be significantly more volatile. Many before and after business hours traders are also institutional investors who trade mutual funds and hedge funds, which means that retail investors must compete with professionals who are better equipped to work their orders than the average individual investor.

Bell opening hours

The New York Stock Exchange and the Nasdaq Stock Exchange open at 9:30 am ET and close at 4:00 pm ET, but different exchanges around the world open at different times of the day. For example, many futures markets have an opening bell followed by a morning and afternoon session. Options markets also tend to have different opening bells depending on the exchange. Traders should be aware of these times before trading the market.

In the foreign exchange (forex) market, there is no opening bell as the market operates 24 hours a day, six days a week. However, the start of the trading day is often considered to be at 5:00 PM ET until the same time the next day.

www.investopedia.com

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Mark Holland

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