# Historic Pricing: What It Means, How It Works

## What Is Historic Pricing?

Historic pricing is a unit pricing method used to calculate the value of an [asset](https://www.investopedia.com/terms/a/asset.asp) using the last [valuation](https://www.investopedia.com/terms/v/valuation.asp) point calculated. Historic pricing is used when the value of an asset does not update in real time.

### Key Takeaways

*   Historic pricing is a method for calculating an investment's net asset value (NAV) based on changes from its previous valuation.
*   Investors using historic pricing can accurately compute the total number of shares or units that a certain dollar amount will buy, but runs the risk the last valuation will be stale.
*   Forward pricing of NAV is used more frequently than historic pricing.

## Understanding Historic Pricing

Historic pricing illustrates the importance of understanding when assets have last had their values calculated, whether at a certain point or at various points during the trading day or in real time. This is known as the valuation point. If an investor happens to trade at the exact point that the [net asset value](https://www.investopedia.com/terms/n/nav.asp) (NAV) is calculated, then they do not have to consider gaps in time as part of their [investment strategy](https://www.investopedia.com/terms/i/investmentstrategy.asp).

However, if an investor trades the asset before or after the net asset value has been determined, they will be working off an old (stale) value. This means that there may be the risk that the estimated valuation upon which the trading decision was based is, in fact, inaccurate.

[Mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) typically update their net asset values at the end of the trading day. [Fund managers](https://www.investopedia.com/terms/f/fundmanager.asp) have two options: they can look at the last calculated net asset value (also known as the historic valuation point), or they can note the net asset value of the next valuation point.

An investor looking to buy a [fund](https://www.investopedia.com/terms/f/fund.asp) based on historic pricing knows how many [shares](https://www.investopedia.com/terms/s/shares.asp) can be purchased for a certain amount of money because the valuation point is known. In turn, sellers know exactly how much money they can get for a specific number of shares. The buyer's risk is that the net asset value of the fund actually decreases by the next valuation point, meaning that they will have spent more on a particular number of shares. The risk for the seller is that the shares increase in value at the next valuation point, meaning that the seller does not make as much money for a given number of shares.

## Forward Pricing vs Historic Pricing

[Forward pricing](https://www.investopedia.com/terms/f/fowardpricing.asp) is the net asset value calculation method used the most. Forward pricing involves processing buy and sell orders for shares of open-ended mutual funds at the net asset value as of the next market close.

Notably, [open-ended mutual funds](https://www.investopedia.com/terms/o/open-endfund.asp) revalue their assets upon the close of the trading day. Buyers are at a disadvantage because they do not know how many fund shares can be purchased. This pricing mechanism ensures that the shares are bought and sold at a price that more accurately reflects the changes in the fund that may have occurred since the previous valuation.