Opening/closing price, % change, daily change, percentage points

When we study charts, we are usually concerned with 4 main prices for each candle: open, close, low, high. Even if you’re just passively watching your stock performance over many weeks, you are still tracking its price, and each day you see that the price changed by some $ amount, which is also expressed in %. But which price is being talked about here?

Let’s imagine we are looking at a daily chart, which means every candle on the chart represents 1 day (and not that we are looking at the zoomed-in minute-by-minute performance within 1 day). The opening price represents the price at which the stock opened main trading hours, i.e. the price at which the 1st transaction after 09:30 was completed. Similarly, the closing price is the price at which the stock closed main trading hours, i.e. the price at which the last transaction before 16:00 was completed. Candles, whatever their time duration, may even have a % change indicated when you hover over them in your trading platform or in an online chart, and it may, to one’s confusion, indicate 1 of 2 things, depending on the resource: the change between the open and close (i.e., the size of the body of the candle) or the change between the current and previous closes.

But regardless of what you may see when you hover over a candle, what’s more important and more ubiquitous is to hear about daily $ and % change, i.e. things like “stock X gained $1 (5%) on Tuesday” or “stock X gained 10% in November”. Now, this always means one thing: close prices are compared. With the 1st example, we mean that if we take the stock’s price at Tuesday close and compare it to the price at Monday’s close, then we get a $1 (5%) increase, i.e. Tc − Mc = $1 and (Tc − Mc) ÷ Mc = 5%. It is exactly the same with the 2nd example: the 10% gain happened between closing price on the last day of October and closing price on the last day of November. Note that nowhere in these examples do we consider the opening price or the 1st of a month.

So, despite the fact that the difference between open and close represents the size of the body of a candle, which is easy to understand from a visual perspective, in reality, when people talk about price change, they almost always mean the difference between closing prices, as this is intuitively a more correct comparison. This concept extends to things like MoM and YoY (month-over-month & year-over-year) comparisons, and many others.

On a related note: it is important to know when to use the term “percentage point (p.p.)” and why it’s used. Let’s say instead of talking about the increase of a parameter, we are talking about a parameter that is already measured in % and not in $, meters or whatever. This could be the Fed’s interest rate or the rate of revenue increase — both are measured in %. So, what if we want to talk about a % increase of a figure that is already measured in %? Let’s take for example the Fed’s interest rate: let’s say it was 2% initially, and then the Fed increased it to 3%. What we would say here is the Fed increased the interest rate by 1 p.p., not by 1%, because the latter might be construed as “1% of the original amount, i.e. 1% of 2%”, which would equal 0.02%, because 1% of 2 is 0.02.

Let’s now explore an example where we would not use the term “p.p.”: a billionaire owns 10% of a public company, which means he owns 10% of its outstanding shares. Let’s say there are 10 million shares outstanding. Then the billionaire owns 1 million of them. Say he increased his stake by 50%. Does this mean he now owns 10% + 50% = 60%? No! That would then be a 50 p.p. increase, not a 50% increase. What we really mean is that he has 50% more shares than before, i.e. that he now has 1.5 million shares.