Historic Pricing

When we see the term “historic pricing,” maybe we immediately think of those fascinating charts that tell us how much a gallon of milk cost in 1962.

Those are neat and all, but in the world of financial markets, the term “historic” refers to something that occurred a lot more recently than 1962. For the most part, “historic prices” are market prices that were recorded yesterday, or whenever the last time the value of the asset in question was valuated.

Mutual funds, unlike Facebookers, can’t update their “status,” so to speak, in real time. So when investors want to buy or sell those funds, they sometimes do it based on the fund’s historic price: the value it held at the close of the last trading day. There’s a little bit of risk involved there, because if the value went up in the meantime, we could have lost money if we sold. Or the reverse could be true: if the value went down, we might have paid more for the fund than it’s worth today.

Just as an FYI, not all funds use historic pricing. Some use forward pricing, which is the opposite: an asset’s value is calculated based on what its next closing price is expected to be. This is actually a lot more common, but it too comes with risks, since we can’t ever know 100% for sure what an asset’s value is going to be when the market closes.