Market-On-Close Order

The Market-On-Close Order refers to a stock market order whereby a particular security is traded very close to its last trading price on that particular day. Such an order is either executed at the same time when the market closes or just after that.

The primary objective of the traders is to buy or sell stocks, futures, or options at the price point nearest to the market’s closing price. Thus, it facilitates the investors and traders to execute trading strategies in foreign exchange markets with different time zones or exit a position at the closing price of the day.

• The market-on-close order refers to a trading strategy for buying or selling a particular security, future, or option immediately as the market closes or right after it at the closing price of that trading day.
• A market-on-close order facilitates the traders to execute security trading in different financial markets or foreign exchanges, having independent time zones.
• Market-on-close (MOC) orders are particularly useful for investors looking to avoid potential price fluctuations that can occur during the trading session.

The market-on-close (MOC) order is a stock market trading approach to buying or selling a security, future, or option at its closing market price for the day. This order only stands active at the end of the relevant trading day. Indeed, it works as a normal market order after that. It is a common trading strategy adopted by intraday traders to conveniently exit the market without hustling at the closing hour. Moreover, it is usually done to avoid the risk of overnight price fluctuations in the financial market.

To make an MOC, the investor needs to opt for the BUY or SELL option after entering the respective stock’s ticker symbol. It is necessary to enter the correct size or number of shares for which the order is to be executed. Another critical step is to click on the market-on-close (MOC) option, which will be found in the order type’s dropdown menu. Finally, the user needs to submit the market-on-close order, which will be exercised as the market closes.

Let us understand how the market-on-close order works for effectively trading securities in reality with the help of the below examples:

Example #1

Suppose Anne is a finance graduate, and she has a keen knowledge of the stock market. She holds 1500 shares of XYZ Pharma Co., on which she has already made 15% returns in a week. However, the news of the consequent failing clinical trials of the company, which would cover the next day’s news and media, made her place a market-on-close order to exit her position. As the MOC became active, she sold all her shares at a profit of 11% from the purchase price.

Example #2

Say George is an active investor who keeps up with the company’s news and financial reports to gain a trading advantage. He is closely following the news of PQ Fintech, which is going to launch new digital features to provide seamless financial services to its clients. He anticipated the company’s stock prices would flare up with this launch. Therefore, just a day before the company made this announcement, he made a market-on-close order to buy 500 shares of PQ Fintech at the closing price of the day. The execution price per share was $57; however, as the company announced its digital initiative, the stock prices reached $68, I.e., trading at $11 per share profit.

The market-on-close order is a beneficial strategy for traders, investors, and brokers to effectively trade in the financial markets. However, along with the various benefits, it has particular potential drawbacks, as discussed below:

#1 - Advantages

• Protects from overnight price volatility: The traders often adopt MOC to mitigate the risk of an overnight price fluctuation of the relevant stocks, futures, or options when a massive news story is expected to be released or an earnings call is scheduled the next day.
• Facilitates trading in different time zones: The investors who trade in different foreign exchanges or stock markets functioning in varying time zones need to use MOC to exit the trade as the market closes.
• Offers automatic execution: Since the MOC executes the trade at the closing price immediately as the market closes, the traders don’t need to keep an eye on the market prices or the clock every time.
• Ensures execution certainty: The market-on-close order also helps the investors to buy or sell securities when they know they won’t be there to execute the market order when the market closes.

#2 - Disadvantages

• Uncertain execution price: The foremost limitation of this strategy is that the traders need to be made aware of the final price. Also, they have no control over the same after a designated time.
• Closing price volatility risk: The financial markets are uncertain, and the stock prices may significantly fluctuate at the closing time, which increases the risk of selling at a lower price or buying at a higher price than anticipated by the investor.
• Can adversely affect the market: If several traders perform the same trading action for a particular security through MOC, then it may impact the market stability and the stock prices.
• Chances of poor execution: There is a possibility that the high volume of trade through market-on-close orders at the end of a trading day can result in pending requests.

This article has been a guide to what is Market-On-Close Order. Here, we explain the concept along with its examples, advantages, & disadvantages. You may also find some useful articles here -

• Limit Order
• Stop-Limit Order
• Buy Limit Order