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WHAT IS A MARKET ON CLOSE ORDER AND WHY SHOULD YOU USE IT

Understanding how to effectively use a market-on-close (MOC) order can make a significant difference in your trading strategy. An MOC order allows you to buy or sell a security at the closing price of the trading day. In our comprehensive guide, we delve into the mechanics of MOC orders, highlighting when to use them and their unique benefits.

Last Update

4.10.24

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Understanding Market-on-Close Orders


If you are venturing into the trading world, you have probably encountered diverse order types. One such order is the market-on-close (MOC) order. This section will explore an MOC order and why it is important for traders.


Market-on-close orders are orders placed with a broker to buy or sell a security at the trading day's closing price.


Unlike limit orders that specify a price limit, MOC orders are executed at the market price at the end of the trading session. This means you allow your order to be completed during the market's closing auction.



How Market-on-Close Orders Work


When you place an MOC order, you are instructing your broker to execute your order as close to the market close as possible. Here's a look at how it works in practice:


As the market close approaches, liquidity often increases, and volatility can either rise or stabilize depending on market conditions. A MOC order capitalizes on this closing activity to initiate transactions at market price.


  • Execution Timing: An MOC order is sent and remains inactive until the closing auction begins.

  • Increased Liquidity: The last moments before the market closes often increase trading volume, providing ample opportunity for your order to be executed.

  • Predictable Execution: Since MOC orders are executed at the market closing price, they offer a predictable execution mechanism, unlike other order types subject to intra-day price fluctuations.



Benefits of Using Market-on-Close Orders


Now that you have a basic understanding of MOC orders, it is essential to know their advantages. Here's why you might consider using a market-on-close order for your trading strategy:


Using an MOC order can simplify your trading approach and provide some certainty that your order will be completed at the day's closing price.


MOC orders are executed at the market closing price, decreasing the possibility of price slippage. This benefits traders who want to avoid the unpredictability of intra-day price changes.


Executing trades at the market close eliminates the need to constantly monitor price swings throughout the trading day.


Many trading strategies rely on end-of-day price data for decision-making. MOC orders facilitate the effective implementation of these strategies.


Understanding MOC orders' inner workings and benefits can significantly enhance your trading efficiency. In the following sections, we will delve into specific scenarios where MOC orders are particularly useful and potential pitfalls to be aware of.

When to Use Market-on-Close Orders


Here are some scenarios where MOC orders are particularly effective:


A market-on-close order is especially useful if you want to enter or exit a position at the end of the trading day without worrying about intra-day price volatility.


  • End-of-Day Trading Strategies: MOC orders are ideal for traders who prefer end-of-day strategies, such as those based on daily indicators and signals.

  • Earnings Announcements: Companies often release their earnings reports after the market closes. A MOC order allows you to establish a trade without immediately reacting to the news.

  • Portfolio Rebalancing: Investors looking to rebalance their portfolios can use MOC orders to execute trades at the end of the day, ensuring they achieve the most current closing prices for their transactions.


By applying MOC orders during these scenarios, traders can take advantage of higher liquidity and generally lower volatility at the end of the trading day.



Risks and Considerations


While market-on-close orders offer numerous advantages, they come with certain risks and considerations that traders need to be aware of:


Like any trading strategy, MOC orders should be carefully considered to ensure they align with your overall goals and risk tolerance.


  • Potential Market Impact: Although the closing auction usually sees an increase in liquidity, large MOC orders can still impact the closing price. If the order is significantly large compared to the security's average trading volume, it could lead to an unfavourable closing price.

  • Lack of Control over Execution Price: With MOC orders, you relinquish control over the price. An unexpected event could cause substantial price movements just before the market closes.

  • Short-Term Market Fluctuations: Short-term fluctuations in volatile markets just before the market closes could result in a less favourable execution price than anticipated.


Common Mistakes to Avoid with Market-on-Close Orders


While market-on-close orders can be a vital tool in your trading arsenal, avoiding common mistakes that could undermine your strategy is crucial. Here are some errors to watch out for:


To maximize the benefits of MOC orders, traders, especially those new to this type of order, need to be aware of potential pitfalls.


  • Ignoring Market Conditions: Using an MOC order without considering overall market conditions can backfire. For instance, if significant news are expected at the end of the trading day, the closing price will become unpredictable.

  • Large Orders in Low Liquidity Securities: Attempting to execute a large MOC order in security with low trading volume can drastically impact the closing price, often unfavourably.

  • Overlooking Broker Commissions: Some brokers may charge higher fees for MOC orders. It is essential to review fee structures in advance to ensure they do not erode your gains.


Avoiding these common mistakes can help you use MOC orders more effectively and in alignment with your trading strategies.

Market Closed on a Tablet

Market-on-close orders are types of orders placed with a broker to buy or sell a security at the closing price of the trading day.

Unlike limit orders that specify a price limit, MOC orders are executed at the market price at the end of the trading session. This means you are allowing your order to be completed during the market's closing auction.

Examples: Real-World Applications of Market-on-Close Orders


Case Study 1: Portfolio Rebalancing


A large investment fund frequently uses MOC orders to rebalance its diversified portfolio at the end of each quarter. By using MOC orders, the fund ensures that it buys and sells securities at the closing price, reflecting the most accurate asset allocation for reporting purposes.


Case Study 2: Earnings Announcements


A day trader anticipates a strong earnings report from a tech company and decides to place an MOC order to buy shares. Despite the initial market volatility, the order is executed at the end of the day, avoiding intra-day price spikes and securing the shares at a stable closing price.


Case Study 3: Avoiding Intra-Day Volatility


An investor with a long-term outlook wants to add a stable, dividend-paying stock to their portfolio. Using an MOC order allows the investor to avoid the stock's intra-day volatility and secure the shares at the day's closing price, aligning with their long-term strategy.


These case studies highlight various situations where MOC orders can be beneficial, demonstrating their versatility and potential in different trading contexts.

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