Getting to know market-on-close orders
What are market-on-close orders?
A market-on-close order, also known as MOC, is a market order without limits. Traders execute these orders to the nearest possible closing price of the stock during or a little after the market's closing. If traders anticipate tomorrow's stock price movement, they will use MOCs to get the last possible price. MOCs are not available in all financial markets. Also, not all brokers can do the execution.
A market-on-close order is the exact opposite of market-on-open order, which is also known as MOO. Traders use MOCs during or after the market closes, and traders use MOOs in the market's opening auction. The goal of the MOCs is the trading day's last available price, while MOO's goal is the trading day's opening price.
How do market-on-close orders work?
The submission of market-on-close orders is not all the same. Traders of New York Stock Exchange MOCs must submit the orders by 3:45 in the afternoon EST (Europe Time), and for traders who use Nasdaq, MOCs must submit their orders by 3:45 before the market closes at 4:00 in the afternoon EST.
What will happen to traders and orders after 4:00 pm? Traders are not allowed to cancel or even amend their MOC orders past four in the afternoon EST.
A scenario with market-on-close orders
Joy, who is a trader, is scrolling through her social media page. She suddenly came across an article about LB Company's newest and most anticipated public offer and certain company expectations. She believes that there will be a rapid, massive price appreciation overnight because it was something that many have been waiting for, for a long time. She knew right then and there that she wants to use market-on-close orders to get the stock's closing price because of this event.
After she purchases the MOC order, she is now sure that there will be an order execution before the next trading day and when the news starts to spread. She knows that it can be challenging to execute transactions, sometimes like exiting before the trading day finishes.
Market-on-close orders are very convenient, mainly because traders do not just come from one country. We can find traders globally like Joy, who lives in a country that is not in the foreign exchanges; her time zone is not the same as the European Time. So, in this case, using MOC is a considerable convenience for her.
The downside of market-on-close orders
There are also certain negative things about market-on-close orders. The first is that traders do not have any idea about the price even after filling the order. The only time that the information becomes available is when the trader is the one that is not available. Also, the fact that the market is unpredictable will always remain constant. There will always be risks of sudden changes and fluctuations.
In some rare cases, where
the MOC's execution is horrible due to end-of-the-day clusters, there is high
risk because of bulk pending orders that pile up in the market.
