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A wide opening is an unusual spread between bid and ask prices which can sometimes be seen at the start of a trading session. When a wide opening occurs, there is a disparity between prices people are willing to pay for commodities or securities and prices at which people are willing to sell them. Wide openings can occur for a number of different reasons and they usually correct as trading commences for the day and people become active on the trading floor and over remote trading systems.
At the opening of the trading session, sometimes not very many people have put in bid or ask prices, in which case a wide opening can occur because of the limited number of people involved. Once market makers and specialists begin to get active, the spread narrows, because these traders are highly competitive and they want to move trades to make deals for themselves, their clients, or their employers. Their activity causes the bid and ask prices to become closer together, facilitating trading.
Bid prices are the prices which people are willing to pay. The bid price is an offer put forward by someone who is looking to buy something on the trading floor, to see if anyone is interested in selling at that price. Conversely, ask prices are prices at which people are willing to sell, and they are thrown out on the floor by people with commodities or securities to offer who would like to sell them.
Once two traders make an arrangement with each other, the sale can be recorded and the traders can move on to their next transactions. If there is a wide opening, trading can initially be sluggish because traders are unwilling to close the spread and get trading moving. They may also be waiting for movement on the part of larger traders who can have a bigger impact on activity because they are working in high volumes.
The presence of a wide opening is not necessarily any sort of indicator or cause for concern, although people who track financial markets may take note of wide openings. Unusual patterns may also periodically be newsworthy, in which case financial reporters may discuss them in their columns or broadcasts. Since all parties involved have an interest in closing the spread so that they can make deals, this temporary disparity is usually not allowed to persist by the people on the trading floor.
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