The Close

Why is it with futures that we see the Close at one price, and then a half-hour later it has moved to another price? Why isn't the Close the same as "Last," and what is the "Consolidated Price?"

"Last" is the last price at which an underlying stock or futures is traded. It could also be the "Close."

The Close that you see within minutes or seconds after trading has ceased may not be the final price you see some time later.

Logically and theoretically, the last price traded should be the same as the closing price of an underlying stock or futures.

The last trade you see at the moment of the close may not truly be the last trade. With many stocks or futures trading heavily at the close, a few minutes are required to process orders and determine which among them was the last trade. Depending on the exchange or quote service, these trades may be posted anywhere from 30 seconds to 30 minutes after the closing bell.

To make matters more perplexing, the closing price you see when you search for a quote online often is a "consolidated quote". This quote is delivered from a system that pulls transactions from all exchanges and puts them into one data stream. In addition to a consolidated closing quote, many exchanges, like the NYSE and Nasdaq, offer an official last trade or closing price for trades on their exchanges. Hence, you get what appears to be differing last or closing prices.

Additionally, with the advent of after-hours trading, you may see a "last price" that differs greatly from the "closing price" because the last price in this instance represents the last transaction that occurred in ongoing after-hours trading. In another few moments, the stock, or futures may trade again and have a new "last price". Of course, this information could seem puzzling when compared against the unchanging closing price from normal trading hours.

However, the way we trade stocks and the markets we trade them on have undergone numerous innovations over the last decade. Thus, a late-afternoon online search for a closing price or last quote might reveal conflicting results.

Once a closing bell signals the end of a day's trading, the exchange's clearing organization matches each purchase made that day with its corresponding sale, and tallies each member firm's gains or losses based on that day's price changes – a massive undertaking considering that millions of underlying futures and stocks are bought and sold on an average day. Each firm, in turn, calculates the gains and losses for each of its customers.

Gains and losses on futures contracts are not only calculated on a daily basis, they are credited and deducted on a daily basis. Thus, if a speculator were to have, say, a $300 profit as a result of the day's price changes, that amount would be immediately credited to his brokerage account and, unless required for other purposes, could be withdrawn. On the other hand, if the day's price changes had resulted in a $300 loss, his account would be immediately debited for that amount.

The process just described is known as a daily cash settlement, and is an important feature of exchange trading. It is also the reason a customer who incurs a loss on a position may be called on to deposit additional funds to his account.