Change of the stock price when the market is closed

[Monza]

This is something that confused me and I am not sure if I understood it thoroughly.

I do know that the price of a stock changes due to supply and demand. But sometimes the price plunges or soars when the market is closed (for example WFM losing 25% from when it closed on May 6th to when it opened on May 7th, or DMD on August 4th that went up 80% before the market even opened).

I know that there is pre-market and after hours market. So are the people trading during these time frames the cause of the change of the price? What or who makes the price of a stock change after 4.00 pm ET so abrutly?

 

[timsk]

Hi Monza,
Welcome to T2W.

As you rightly say, it's possible to trade stocks pre and post market which may account for some of the price movement. However, volume levels drop off substantially outside of the 9.30am - 4.00pm trading hours - yet the stock price still moves. The reason is that whilst the NYSE may be closed outside of these hours - other exchanges around the world - and even around the U.S. - are open and active. Most importantly, the futures markets trade pretty much 24 hours a day - as do the foreign exchange markets. The cumulative effects of all of these are built into the price of each and every stock. Time never stands still - the world is in a state of constant flux - so the price of stocks and other tradable instruments reflects that. If they didn't, there would be a massive imbalance between the price of instruments in markets that are open and those that are closed. This would create huge arbitrage opportunities when the balance is restored. Sadly, for most of us, trading opportunities aren't that easy to spot and exploit!

If you've not seen them already, you may find these stickies offer additional insights into how the equities market operates: Essentials Of Stocks and Essentials Of 'Indices'
Tim.