What Is an At-the-Close Order?
An at-the-close order determines that a trade is to be executed at the close of the market, or as close to the close time as could be expected. An at-the-close order is one in which the broker or potentially exchange is directed to guarantee that an order is only filled at that given season of the trading day.
In certain cases, for example, exchange auctions or crosses, at-the-close orders are held at the exchange and afterward filled together at the day's end, normally causing a lot of volume at the close of the day.
This is something contrary to a at-the-opening order.
Figuring out At-the-Close Orders
An at-the-close order is basically a market order that will only fill at the finish of the trading day, at the price available around then. With this type of order, you are not really guaranteed the closing price however normally something practically the same, contingent upon the liquidity in the market and the bid-ask for the security in question.
Traders who accept that a security or market will move in support of themselves during the last couple of moments of trading will frequently place such an order with expectations of having their order filled at a more desirable price. Since there can be such a lot of volume and price movement in the last couple of moments of trading, this strategy can likewise blow up, leaving the trader with a fundamentally more regrettable price than expected.
Various exchanges have different order types and processes for getting orders filled at the day's end. The New York Stock Exchange (NYSE) takes care of requests at the day's end through an auction interaction where traders submit either market-on-close (MOC) or limit-on-close (LOC) orders. The MOC is guaranteed to be filled, while the LOC will only fill assuming that the closing price is inside the price threshold (the limit) set by the trader.
MOC and LOC orders can be placed all through the trading day, however must be placed before 3:50 p.m. ET (10 minutes prior to close). Orders can be canceled up until 3:58 p.m., after which they are locked in and can't be canceled. At 4 p.m., normal trading closes and the auction happens. Auction prices depend on the supply and demand of the orders participating in the auction, which can make the price move essentially in the last seconds of trading.
Traders are not required to go into this auction interaction. They can present a normal at-the-close order to the broker, who will send a market order to exploit available liquidity just prior to the closing bell at 4 p.m. ET (for U.S. exchanges).
Why Use At-the-Close Orders
An at-the-close order is utilized when a trader needs to execute a trade at the closing price of the trading day. This could be due to the strategy they use, or they accept the closing price will give a better price to them than the prices available leading up to the close. Or on the other hand, the trader might hold for a specific amount of time, and consistently exit on the close of the last day of the trade. Day traders may likewise trade over the course of the day, and afterward use at-the-close market orders to guarantee they escape every one of their positions at day's end. On the flip side, a trader might need to enter trades at the day's end, rather than waiting for the next open.
Many hedge funds, mutual funds, and ETFs may likewise have to open or close a position just before the closing bell to adjust portfolios for approaching and active asset flows.
Another illustration of when an at-the-close order may be utilized is when there is a corporate announcement, for example, earnings, right after the bell. The trader might need to hold the position to the extent that this would be possible, yet still get out before the announcement. They could utilize an at-the-close order to do that. Another trader might need to get into a position prior to the announcement, and in this way they enter utilizing an at-the-close.
Other investors might track down inconsistencies at the close of trading due to short squeezes, liquidity, and different other market powers. For instance, auction data on the NYSE is distributed showing share volumes and the conceivable closing price. While this data is constantly changing, a few traders might hope to trade the information, entering prior to the close, and afterward exiting on the auction.
Illustration of an At-the-Close Order in the Stock Market
Expect a stock trader possesses Netflix (NFLX) stock in light of a swing trading strategy. One of the trader's rules isn't to hold through an earnings release due to the gigantic price swings it can cause. The company has announced that it will be delivering its earnings report after the bell today.
The trader enters an at-the-close order, which will sell their position at the finish of the trading day, before earnings are released. Exceptionally close to the close, the broker will execute a market sell order to available purchasers. The order is only disseminated right close to the furthest limit of the day, not before.
By utilizing this order type, the trader can remain in the position as far as might be feasible, while as yet getting out before the market-going earnings announcement. Alternatively, the trader could enter a closing cross sell order on the Nasdaq. The Nasdaq closing cross is like the NYSE closing auction, however each exchange has its own unique rules.
- The last seconds of the trading day frequently see huge volume due to at-the-close orders or individuals closing/opening positions at the day's end.
- There are various ways and order types for exiting at the close, and they might differ by exchange.
- At-the-close orders are executed at the finish of the trading day, at the price available.