Definition
A Market-On-Close Order (MOC) is a financial term. It refers to a non-limit market order that is executed as close to the end of the market day as possible. The purpose of an MOC order is to purchase or sell a security at the best price available at the end of the trading day.
Phonetic
The phonetics for “Market-On-Close Order (MOC)” is as follows:Market: /ˈmɑːrkɪt/On: /ɔn , ɑn/Close: /kloʊs/Order: /ˈɔːrdər/
Key Takeaways
- A Market-On-Close Order (MOC) is a type of market order that is executed as close as possible to the closing price of a security. This type of order is usually used by investors who want to trade in large volumes without impacting the market price during the trading day.
- MOC orders need to be placed at least 15 minutes before the close of trading. These orders are often used by institutional investors who need to execute large-volume trades.
- While MOC orders ensure that trades are executed at the end of the trading day, they do not guarantee a specific price. The final executed price will depend on the closing price of the security, which could be substantially different from the price at the time when the MOC order was placed.</li></ol>
Importance
A Market-On-Close (MOC) Order is essential in business/finance because it allows investors to limit their exposure to overnight market volatility by allowing them to buy or sell a security at the close of the trading day at its market price. This kind of order is crucial for investors who want to manage their risks effectively, especially in a volatile market environment. It also provides an opportunity for individuals or institutions that require a large number of stocks to be traded at once without significantly impacting the market price. Overall, an MOC order is a strategic tool that can assist investors in achieving their specific financial objectives by providing flexibility and control over their transactions.
Explanation
The purpose of a Market-On-Close (MOC) order is to enable investors or traders to invest in or sell a certain number of shares at the closing market price for the trading day. This mechanism allows participants to take advantage of potential price movements throughout the day and then secure those shares at the price when the market closes. Given that some substantive price shifts might happen during the day’s trading, MOC orders work well for traders who want to align their trade prices with the closing price and avoid overnight risks.MOC orders are commonly used in scenarios where investors are concerned with substantial changes in the stock’s price or in instances where they seek to limit the impact of their trading activity on the stock’s price volatility during the trading day. For instance, mutual fund managers often use MOC orders to adjust their portfolios. To prevent triggering large price movements, they will place MOC orders so that their trades are filled at the end of the day when trading volumes spike, thereby minimizing the price impact of their trades.
Examples
1. Stock Market Trading: An investor who wishes to buy stocks of a company like Amazon might choose to use a Market-On-Close Order (MOC). If the investor anticipates that the stock price may decrease throughout the day, they can place an MOC order so that their transaction will be executed at a potentially lower price at the market’s close.
2. Mutual Fund Investments: Suppose an individual wants to invest in a mutual fund. Since mutual funds share prices are fixed just once a day after market close, this investor might use an MOC order. This ensures their order will be executed at the Net Asset Value price determined at the end of the trading day.
3. ETF Investments: An investor who believes that an ETF (like the S&P 500 ETF) will increase in value during a trading day might place a Market-On-Close order to sell their holdings. By doing this, the investor aims to maximize their profits by selling at the potentially highest price point – at the close of the day’s trading.
Frequently Asked Questions(FAQ)
What is a Market-On-Close Order (MOC)?
A Market-On-Close Order (MOC) is a type of market order where the purchase or sale of a security happens at or near the market close at the prevailing market price to ensure the order gets filled.
When do traders typically place a Market-On-Close Order?
Traders generally place this type of order when they want to trade a certain stock at the end of the market day. It is primarily used when they perceive the closing price to be of high importance due to economic or earnings news expected after the market close.
How is the price of a Market-On-Close order determined?
The price of an MOC order is not predefined, it is determined by the market prices at the close of trading. This means the exact price at which MOC order will execute can not be controlled.
Can a Market-On-Close Order be cancelled?
Like any other type of market order, an MOC can be cancelled. However, cancellations must be made before the cut-off time, which is typically within 15 minutes of the market closing.
What are the risks associated with placing a Market-on-Close order?
With MOC orders, there’s always the uncertainty of the closing price, which may not be the same as the price when the order was placed. This can result in a higher or lower price than expected.
Can I place a Market-On-Close Order for any type of security?
Yes, an MOC order can be placed for most types of securities. However, its availability may vary depending on the policies of the specific exchange or broker.
What is the difference between a Market-On-Close order and a Limit-On-Close order?
The key difference between an MOC and a Limit-On-Close (LOC) order is that with an MOC order, you’re agreeing to buy or sell a stock at the closing price whatever it turns out to be, whereas with an LOC order, you set a maximum buy or minimum sell price for the stock.
Related Finance Terms
- Limit-On-Close Order (LOC): An order in which a trader sets a limit to buy or sell a stock at the closing price if the closing price matches or offers a more favorable price than the limit.
- Trading Hours: The time during which investors can buy, sell, or trade securities, such as stocks, bonds, and commodities. For MOC, the order must be placed within the last minutes of trading hours.
- Execution: The completion of a buy or sell order for a security. In MOC, execution happens at the very close of trading.
- Market Order: An order to buy or sell a security at the best available price immediately. MOC is a type of market order, but executed at the close of the market.
- National Best Bid and Offer (NBBO): The best, lowest available ask price and the best, highest available bid price for investors to buy and sell securities. For MOC orders, NBBO can influence the execution price.
