Buying stocks when the market opens usually results in a bad deal. It is better to miss a chance to buy shares than end up overpaying.
The US stock market opens at 9:30 am Eastern Time. Investors who place market orders before the opening will have them exercised by the broker at the current price when the market opens.
Because stocks fluctuate during the daily session, putting in an order may result in an investor buying the stock at a higher price than if they waited. Setting a limit price may pick up the stock at a lower price, but the buyer may not end up with any shares at all.
Analysis of Historical Stock Prices
An analysis was done of five selected stocks to determine how the opening price compared to the low price of the day. The stocks chosen were popular stocks with high volume each day.
The stocks chosen, along with their stock symbols:
- Home Depot – HD
- Wal-Mart – WMT
- Apple – AAPL
- Microsoft – MSFT
- Bank of America – BAC
Their highly traded stocks tend to have less volatility than those that have thinner trading volume. The historical prices were retrieved from Yahoo? Finance for the three months, ending May 5, 2020.
Stocks Almost Always Decline During the Day
The first statistic reviewed was how many times the low for day was also the opening price, meaning that buying at the open yielded the best price all day.
This rarely occurred. Out of 66 days in the study, the opening price equaled the low price twice for Wal-Mart and Bank of America, and not at all for Apple, Microsoft and Home Depot. That means a total of four times out of 330, or 1.2%. This means that a stock purchased at the open almost always was losing at some time during the day. There were an additional eight times that the low was one or two cents less than the open.
Much more often the opening price was actually higher than the closing price. For instance, during the study, Wal-Mart declined from open to close 35 out of 66 days. Investors would have been better off not buying the stock until the next day, compared to buying at the open.
What Options do Investors have Besides Buying at the Open?
One alternative for investors that do not have the ability to buy stocks other than before they leave for work is to use limit orders. An investor can set a limit order for a predetermined price below the previous day’s closing price. The drawback for this is that stocks may gap up or gap down from closing to opening, and investors may make a poor decision on the limit price.
What is likely the best option is to find a way to trade when the market is open, either at work (don’t risk losing your job) or on a lunch hour. Markets are most volatile around the open, so a shrewd investor can make a more intelligent decision after reviewing the morning’s price action.
Stocks do fluctuate during the trading day, so it is quite unlikely to ever buy a stock at the exact low for the day. Buying at the open, based on the analysis above, pretty much guarantees that an investor will overpay for a stock.