What is a Market-On-Close (MOC) Order?
A Market-On-Close (MOC) order is a type of stock trading order that is executed at the closing price of the stock on the day the order is placed. Ideal for traders aiming to capitalize on the closing price, an MOC order ensures that the transaction occurs at the end of the trading session, potentially benefiting from any last-minute price movements. This order type is particularly favored by those who speculate on news releases or events scheduled after market close that might affect stock prices.
Key Characteristics of MOC Orders
Timing
MOC orders must be placed before a cut-off time, which varies between exchanges. For instance, the NYSE requires that MOC orders be placed by 3:45 p.m. ET and does not permit cancellations or modifications thereafter.
Execution
MOC orders are executed at or very near the closing price. However, the exact execution price may vary slightly due to end-of-day trading volumes and volatility.
Availability
MOC orders are not universally available across all markets or brokers, necessitating traders to confirm their availability and specific rules with their brokerage platforms.
Strategic Use of MOC Orders
Traders might use MOC orders as part of a broader strategy that involves entering or exiting positions based on predictions of how news or other events will affect the stock’s closing price. Here’s why a trader might prefer an MOC order:
- Maximize Gains/Limit Losses: For stocks expected to drop significantly after the market closes due to an anticipated negative earnings announcement or similar news, a trader might place a sell MOC order to exit the position at the last traded price.
- Trade on Forecasts: Investors who anticipate positive movement due to after-hours news might place a buy MOC order to secure a position at the closing price, anticipating a gap up on the next trading day.
Benefits and Risks
Benefits
- Catching the Closing Price: For many strategies, capturing the closing price can be crucial, especially when reacting to news and events that are expected to impact the stock price immediately after the market closes.
- Simplifies Trading: Traders who cannot monitor their positions throughout the trading day may find MOC orders a convenient tool to ensure participation at the close.
Risks
- Uncertainty in Execution Price: Given that MOC orders are executed at the closing price, which can fluctuate significantly in the last moments of trading, the execution price may vary.
- Market Impact: A large volume of MOC orders can contribute to increased volatility at the close, potentially impacting the execution price.
Example Case Study
Consider a trader monitoring stock XYZ, which is expected to react to an impending regulatory announcement after the closing bell. By placing an MOC order to buy XYZ, the trader can ensure participation in the trade at the closing price, positioning for potential gains when the market responds to the news the following day.
Conclusion
MOC orders can be a potent tool in a trader’s arsenal, offering the ability to strategically enter and exit positions at the end of the trading session. However, they require careful consideration of the market conditions and specific stock behavior to use effectively.
Related Terms
- Limit Order: Specified price as the maximum or minimum acceptable for buying or selling.
- Stop Order: Triggers a market order once a specified price is reached.
- Day Order: Expires if not filled by the end of the trading day.
Suggested Reading
- A Beginner’s Guide to Day Trading Online by Toni Turner
- Trading for a Living by Alexander Elder
- Market Wizards by Jack D. Schwager
MOC orders represent a crossroads of opportunity and risk, providing a unique avenue for navigating the complexities of market close dynamics. Whether you’re a seasoned trader or a newcomer, understanding these nuances can enhance your trading strategy significantly.
