What are Opening Bell and Closing Bell?

Do you remember your school bells? The first bell in the morning meant that you needed to be in the assembly ground for prayers and start your day at school. Then there was the last bell, which everyone eagerly waited for - it signaled - go home - end of the day. In the finance world, we have something similar that marks the start and end of the trading session. Let us understand everything you need to know about these bells - opening and closing bells.

What is the opening bell?

The opening bell is an event that is an official announcement that a trading session on a stock exchange has started. In other words, after the opening bell, you can buy and sell your stocks. The event happens in the morning. In India, the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) opening bell time is 9:15 AM. Opening the bell is seen as a fresh start for traders and investors, a new day, and new opportunities to buy and sell securities.

How does the opening bell work?

Unlike the morning school bells, there is a lot behind the scenes in the opening bell process. Here are details at a high level:

• Pre-market preparation: Before the opening bell rings, there are pre-market trading sessions that take place in which certain securities can be traded. In the pre-session, traders place orders and make last-minute decisions based on the overnight development in the markets. Generally, it lasts for 15 minutes (9:00 AM to 9:15 AM).
• Countdown: As the opening bell time approaches, the countdown begins, and it is usually displayed on the trading screens (NSE and BSE office), and news channels show the same.
• Bell Ringing: At 9:15 am, the bell rings, and trade begins for the day.

Importance of opening bell

Here is the importance of the stock market opening bell:

• Historically Significant: The opening bell has been a tradition for decades and marks the official start of a trading day. It served as a physical signal for traders on the trading floor to begin their activities.
• Symbolic Function: Even today, the opening bell ringing signifies the start of the trading session. It can generate market interest and attract media attention, potentially influencing investor sentiment.
• Psychological Impact: The opening bell can create a sense of anticipation and excitement among traders, particularly for major news or economic events that might impact the market.

What is the closing bell?

The closing bell marks the end of the trading session and gives you an assessment of securities for the day. NSE and BSE have a closing bell at 3:30 pm. The price at which the last trade occurs is recorded as the closing price of the security.

How does the closing bell work?

Here are different sub-steps related to closing the bell:

• Order Book Consolidation: As the closing time approaches (3:30 PM IST), trading activity starts to slow down. Buy and sell orders are matched and executed until a predefined cut-off time.
• Unfilled Orders: Any orders that remain unfilled by the cut-off time are automatically canceled and will not carry over to the next trading day.
• Signaling the End: The closing bell rings at the designated time, marking the official end of the trading session.

Importance of closing bell

Here is why the closing bell is essential:

• Marks the End of Trading Activity: The closing bell signifies that no new orders can be placed until the next trading day opens.
• Price Snapshot: The closing price provides a benchmark for investors to gauge a stock's performance for the day and compare it to previous closing prices.
• Market Sentiment Indicator: The activity leading up to the Closing Bell can reflect investor sentiment and market trends.
• Settlement Process: The closing price is used for various settlement purposes, such as calculating margin requirements and determining payouts for options contracts.

Difference between opening bell and closing bell

Let us summarize our discussion by looking at the difference between the opening and closing bell:

Conclusion

As an investor or trader, you need to know the timing of the opening and closing bell to plan your trading session. These events used to have higher significance earlier, but even in the age of electronic trading, these are significant - they provide a valuable data point for market analysis.