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Dennis, The simple and smart-ass answer is supply and demand. But the
details are a bit more interesting. For the NYSE, there are specialists
who keep a book of all orders for buys and sells on the stocks they
trade. The simple thing is for him to match the buys with the sells.
However, there is often not a fit match. For example, if there are
lots of buys and few sells, he will raise the opening price until he
either finds sellers to match the quantity or finds the issue attractive
enough to risk his own capital. Just the opposite if there are more
sells than buys. So, you can often get a price that is way out of
whack with Friday's close. On the Nasdaq, it is a different game with
similar results. There, the many
market makers post their bid and offer
prices based upon the orders they see and the buzz they hear. For
example, if Fidelity is buying Oracle through Merrill Lynch, Merrill
will put out a decent sized bid at a good price. They will also
contact other market makers to see where a block can be traded. That
is how the other mms get the buzz on the stock.
Again,
the price can be very different from Friday's close. So, you are
always taking a risk with market orders,but market orders at the
opening are even riskier than usual. MB |
