A market-on-open order is an order to be executed at the day’s opening price. Just as the name implies, MOO orders are only to be executed when the market opens.
Investors typically have until two minutes before the stock market opens at 9:30 a.m. to submit a market-on-open order. MOO orders are used in the opening auction of a stock exchange.
Here’s an overview of market-on-open orders, why you might want to use one, the risks of an MOO order, and how to place one.
Different Order Types
To fully understand how an MOO order works, it may help to first understand both stock exchanges and the different ways that trades can be executed. The latter is generally referred to as an “order type.”
Stock exchanges are marketplaces where securities such as stocks and ETFs are bought and sold. In the U.S., there are currently 13 stock exchanges registered with the Securities and Exchange Commission (SEC), including the New York Stock Exchange and Nasdaq Stock Exchange.
Next, market order types. Order types can be put into one of two broad categories: market orders and limit orders.
Market Order
A market order is an order to buy or sell at the best available price at the time. Generally, a market order focuses on speed and will be executed as close to immediately as possible.
But securities that trade on an exchange experience market fluctuations throughout the day, so the investor may end up with a price that is higher or lower than the last-quoted price.
Therefore, a market-on-open order is a specific version of a market order.
Because it is a market order, it will happen as close to immediately as possible and at the open of the market. The order will be filled no matter the opening price of investment. There is no guarantee on the price level.
With each order type, the investor is providing specific information on how, and under what circumstances, they would like the order filled. In the world of order types, these are semi-customizable orders with modifications.
Limit Order
A limit order is an order to buy or sell a stock at a specific price. A limit order is triggered at the limit price or within $0.25 of it. At the next price, the buy or sell will be executed.
Therefore, limit orders can be made at a designated price, or very close to it. While limit orders do not guarantee execution, they may help ensure that an investor does not pay more than they can (or want to) afford for a particular security.
For example, an investor can indicate that they only want to buy a stock if it hits or drops below $50. If the stock’s price doesn’t reach $50, the order is not filled.
After-Hours Trading
An MOO order is not to be confused with after-hours trading and early-hours trading. Some brokerage firms are able to execute trades for investors during the hours immediately following the market closing or prior to the market’s open.
Why Use a Market-On-Open Order?
Stock exchanges aren’t always open. The New York Stock Exchange (NYSE) and the Nasdaq Stock Exchange are both open between 9:30 am and 4:00 pm EST.
Traders and investors may use a market-on-open order when they foresee a good buying or selling opportunity at the open of the market. For example, traders may expect price movement in a stock if significant news is released about a company after the market closes.
Good news, such as a company exceeding their earnings expectations, may lead to an increase in the price of that stock. Bad news, such as missing earnings estimates, may lead to a decline in the stock price. Some traders and investors may also watch the after-hours market and decide to place an MOO order in response to what they see.
It’s also important to know that stock exchanges tend to experience the most volume or trades at the open and right before the close. Even though the stock market is open from 9:30 am to 4:00 pm, many investors concentrate their trading at the beginning and near the end of the trading day in order to take advantage of all the liquidity, or ease of trading.
Examples of MOO Trade
Let’s look at some hypothetical examples of why an MOO order might be useful:
Example 1
Say that news breaks late in the evening regarding a large scandal within a company. The company’s stock has been trading lower in the after-hours market. An investor could look at this scenario and believe that the stock is going to continue to fall throughout the next trading day and into the foreseeable future. They enter an MOO order to sell their holding as soon as the market is open for trading.
Example 2
Or maybe a company reports quarterly earnings at 7 a.m. on a trading day. The report is positive and the investor believes the stock will rise rapidly once the market opens. With an MOO order, the investor can buy shares at whatever the price may be at the open.
Example 3
Though this won’t apply to the average individual investor, MOO orders may also be used by the brokerage firms to fix errors from the previous trading day. A MOO order may be used to rectify the error as early as possible on the following day.
Risks of MOO Orders
It is important to understand that if a MOO order is entered, the investor receives the opening price of the stock, which may be different from the price at the previous close.
Volatility at the Open
Considering the unpredictable and inherent volatility of the stock market, the price could be a little bit different—or it could be very different. Investors that use MOO orders to try and time the market may be sorely disappointed in their own ability to do so, but only because timing the market is exceedingly difficult.
Most investors will likely want to avoid trying to weave in and out of the market in the short-term and stick with a long-term plan. Some investors may use MOO orders with the intention of taking advantage of price swings, but the variability of the market could trip up a new investor.
Because the order could be filled at a price that is significantly different than anticipated, this may create the problem of not having enough cash available to cover a trade.
Using Limit-On-Open Orders
An alternative option is to use a limit-on-open order, which is like an MOO order, but it will only be filled at a predetermined price. Limit-on-market orders ensure that a transaction only goes through at a certain price point or “better.”
The downside of doing a limit-on-market order is that there is a chance that the order doesn’t get filled.
Liquidity Issues
With an MOO order, there could also be a problem of limited liquidity. Liquidity describes the degree to which a security, like a stock or an ETF, can be quickly bought or sold.
As mentioned, there tends to be greater liquidity at the beginning of the day and at the end, and investors will generally not have a problem trading the stocks of large companies, because they have many active investors and are very liquid.
But smaller companies can be less liquid assets, making them slightly trickier to trade. In the event that there is not enough liquidity for a trade, the order may not be filled, or may be filled at a price that is very different than anticipated.
The Takeaway
Market-on-open orders are submitted by investors when they want their order executed at the opening price and be part of the morning auction. An investor may use this order if they want to capture a stock’s price move up or down as soon as the trading day starts.
However, MOO orders don’t guarantee any price levels, so it may be risky for an investor if shares don’t move in the direction they were expecting. Unlike limit orders though, they are more likely to get executed.
SoFi offers MOO orders for investors who want their trades to be executed at the open of a trading day. On the Active Investing platform, investors can buy and sell stocks, ETFs and fractional shares with zero commission fees. Trading such assets can be done using MOO orders.
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