The market on close order in stock trading is a type of exchange that buys or sells stock as close to the end of the trading day as possible. Though it can seem random and risky, at times, it is actually very beneficial, especially for investors who have good ideas about the habits of the stocks they are following. Below is some information about the MOC trade and its advantages.
What is a Market On Close Order in Stock Trading?
The MOC is an order that is set earlier in the trading day to buy or sell shares of a given security at very close to the closing price. This order is filled, regardless of market value of the stock, just before the close. It can be very useful for a buy on a stock that tends to drop in price towards the ends of days, or for a sell of shares of a stock that often rises in value later in the trading day.
Example MOC Order
Suppose that stock ABC tends to drop in value just before the end of the day. If an investor is not going to be available, and wants to purchase some shares as close to the end of the trading day as possible, he could set a market on close order to buy shares. If the stock is trading at $4 when the order is set, and it drops down to $3.80 by the end of the day, less money is spent on the buy. However, there is never any guarantee that this order is a wise one; the stock could uncharacteristically rise.
Also suppose that another trader has shares of XYZ, which is trading at $5 per share. She could set a sell MOC to unload stock, and then, close to the end of the day, the order would be filled. If XYZ typically rises in value later in the day, this order could be profitable. Again, there is never any guarantee that the MOC will be accompanied by any profitable utility; it is simply another tool for investors.
Advantages of Market On Close Order in Stock Trading
The main advantage of the MOC order is that it allows investors to implement their long term strategies based on their projections quickly. For instance, if an investor thinks that a stock may drop in value and then rise, allowing for a low buy and a higher sale over time, then the trader will act on this assumption and use it as a strategy that designates times to buy and sell. So, if a trader expects a certain stock to drop by the end of the day, and later rise, then, a buy MOC order conforms to the right trading strategy.
Another advantage of market on close orders is their abilities to capitalize on trends. If a certain stock does tend to drop or rise in value at the end of the day, then an MOC order to buy or sell, respectively, can be profitable overall.
A very basic benefit of the market on close order in stock trading is its ability to be set in advance. If a trader wants shares of a stock by the end of the day, and suspects that it will take a favorable course, but he will not be around late in the trading day, the MOC order will buy on his behalf at market price before close. The same would work for a sell trade.
Although it sounds complex, the MOC exchange is nothing more than a market order that fills at a specific time. It may be accompanied by plenty of risk, and it should only be set for stocks for which some preferable course is expected.