Getting to know market-on-open orders
What is a market-on-open order?
Market on open orders, also known as MOO, refers to marketing orders used in a trading's opening auction. These orders promise execution and not the price, hence their nature as market orders. In short, the execution of MOOs only happens at the day's opening price with the day's first printed price.
MOOs are non-limit orders, and traders place them if they think that the price may suddenly change throughout the day. They influence the market since it creates an imbalance before the trading day goes full swing.
Market-on-open orders are the opposite of market-on-close orders since the execution is close to the closing price. Traders can execute MOCs almost or during the market's closing. The trading day's last available price is the primary goal of MOCs, while in MOOs, the goal is the trading day's opening price.
New York Stock Exchange market-on-open orders vs. Nasdaq market-on-open orders
Even though orders might be considered as MOOs, they have different mechanisms. For example, Nasdaq's MOOs have other mechanisms compared to that of NYSE's MOOs.
Traders can enter, cancel, or even amended from 7:00 in the morning until 9:28 Eastern Time on weekdays with Nasdaq's MOOs. While traders who trade with New York Stock Exchange MOOs can enter, cancel, amend anytime until 9:28 in the morning, Eastern Time. If the MOOs are liquid enough, then there will surely be an execution but not identifying the price.
Market makers in line with market-on-open orders
Traders buy and sell orders overnight and early in the morning at different prices. A few minutes before the market opens, a trader must purchase an order before an execution. In those few minutes, traders need to specify what kind of orders they want. They can be limit, market, large or small orders, or buy or sell orders. Market makers create a balance in the supply and demand since usually there is an imbalance on the market's one side.
Market makers facilitate auctions every trading day at the open to know what the opening price is. Market makers tend to avoid volatility and increase liquidity; that is why exchanges need them. Exchanges may force market makers to facilitate trades (opening and closing auctions) to gain more balance. They sometimes get privileges that traders do not get, so they will do better at what they do.
Why do traders tend to prefer opening and closing? These times are the peak of trading. There is lesser volatility than a substantial mutual fund order or ETF, and also, there is more liquidity during these times. If a trader orders bulk MOOs, then the opening asking price should be more than yesterday's closing price.
When do traders typically use market-on-open orders?
Retail traders either use market-on-open orders for orders that create market impact or obtain an opening print.
If they use it for market impact, even small shares can massively impact the market. Due to this reason, it is wise to use this liquidity advantage.
However, traders might also
use market-on-open orders to obtain an opening print since some systems might
require this. MOOs match backtesting excellently when trading with these systems.
