Like closing time at your local bar, only for financial markets...you don't have to go home, but you can't trade here.
You've seen it on TV. The bell rings at the end of a busy trading day on Wall Street. This ceremony takes place at the New York Stock Exchange, which rings a bell (electronically) at 4 pm Eastern Time. Other exchanges don't necessarily have a physical closing noise (we suggest a walrus call for the NASDAQ), but the term "closing" still gets used to mark the end of that day’s trading session.
However, the word "closing" has a relatively loose meaning. Just because a market has "closed" for the day does not mean that trading has stopped. Called pre- and post-market trading, international electronic communication networks allow traders to continue to make deals outside of official trading times for the major exchanges.
It is also common practice for companies to hold off on making any big announcements that could greatly affect their share price while the markets are open. Instead, the firms will release the information before the open or after the close.
At exactly 4 pm the work begins to calculate the closing price for each security. The closing price is used to match as many buy and sell orders as possible.
Related or Semi-related Video
Finance: What are At-the-Close Order and...24 Views
Finance a la shmoop.. What are at the close order and at the opening orders
Well simply put they're a way of buying and selling stocks and bonds and [Shmoop video on PC monitor]
they're really a hybrid form of a limit order only instead of limiting the order
of a hundred shares of Mickey D's at 45 bucks or better the "limit"
is time-based that is it is placed a minute or less from the close of the
market like 3:59 p.m. New York time or the open of the market like 9:31 a.m. New
York time got it so why would someone do this kind of limit order well if a [Man discussing limit order]
company that day before had printed what looked like a really good quarter but
upon deep inspection the investor who owned the shares thought otherwise and [Man inspecting company folder]
you know wanted to dump them well then that investor would want to take
advantage of a high opening print and just sell it whatever the price was a
minute or two after the open making the bet that the stock would then trade down
after bigger smarter better analysis was published on the stock itself and then
everyone else went to dump it - so what about an at the close order well kind
of inverse of the same thing here a company's quarter will be announced at [4:28pm shown on digital clock]
4:30 p.m. New York time tons of excitement leading up to it so
"everyone" wants to be long the stock ahead of earnings but you think
earnings will disappoint like you know buy the rumor sell the actual news kind
of vibe so you want to hold the stock until the last minute that day and then
you just give the guidance to sell the stock that last minute of trading or at [Investor sells stock to market]
the close and you're out and now we have arrived at the close of this video... Adios! [Man waving on stage]