At-the-Close Order

What Is an At-the-Close Order?

An at-the-close order specifies that a trade is to be executed at the close of the market, or as near to the close time as possible. An at-the-close order is one in which the broker and/or exchange is directed to ensure that an order is only filled at that given time of the trading day.

In certain cases, such as exchange auctions or crosses, at-the-close orders are held at the exchange and then filled together at the end of the day, typically causing a significant amount of volume at the close of the day.

This is the opposite of an at-the-opening order.

Understanding At-the-Close Orders

An at-the-close order is essentially a market order that will only fill at the end of the trading day, at the price available at that time. With this type of order, you are not necessarily guaranteed the closing price but usually something very similar, depending on the liquidity in the market and the bid-ask for the security in question.

Traders who believe that a security or market will move in their favor during the last few minutes of trading will often place such an order in the hopes of having their order filled at a more desirable price. Because there can be so much volume and price movement in the final few minutes of trading, this strategy can also backfire, leaving the trader with a significantly worse price than expected.

Different exchanges have different order types and processes for getting orders filled at the end of the day. The New York Stock Exchange (NYSE) fills orders at the end of the day through an auction process 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 if the closing price is within the price threshold (the limit) set by the trader.

MOC and LOC orders can be entered throughout the trading day, but 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., regular trading closes and the auction occurs. Auction prices are based on the supply and demand of the orders participating in the auction, which can cause the price to move significantly in the final seconds of trading.

Traders are not required to enter into this auction process. They can submit a regular at-the-close order to the broker, who will send a market order to take advantage of 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 used when a trader wants to execute a trade at the closing price of the trading day. This could be due to the strategy they use, or they believe the closing price will provide a better price for them than the prices available leading up to the close. Or, the trader may hold for a specific amount of time, and always exit on the close of the final day of the trade. Day traders may also trade throughout the day, and then use at-the-close market orders to assure they get out of all their positions at day's end. On the flip side, a trader may want to enter trades at the end of the day, as opposed to waiting for the next open.

Many hedge funds, mutual funds, and ETFs may also need to open or close a position just before the closing bell to adjust portfolios for incoming and outgoing asset flows.

Another example of when an at-the-close order might be used is when there is a corporate announcement, such as earnings, right after the bell. The trader may want to hold the position for as long as possible, yet still get out before the announcement. They could use an at-the-close order to do that. Another trader may want to get into a position prior to the announcement, and thus they enter using an at-the-close.

Other investors may find anomalies at the close of trading due to short squeezes, liquidity, and various other market forces. For example, auction data on the NYSE is published showing share volumes and the possible closing price. While this data is constantly changing, some traders may look to trade the information, entering prior to the close, and then exiting on the auction.

Example of an At-the-Close Order in the Stock Market

Assume a stock trader owns Netflix (NFLX) stock based on a swing trading strategy. One of the trader's rules is not to hold through an earnings release due to the huge price swings it can cause. The company has announced that it will be releasing its earnings report after the bell today.

The trader enters an at-the-close order, which will sell their position at the end of the trading day, before earnings are released. Very near to the close, the broker will execute a market sell order to available buyers. The order is only disseminated right near the end of the day, not before.

By using this order type, the trader is able to stay in the position as long as possible, while still getting out before the market-moving earnings announcement. Alternatively, the trader could enter a closing cross sell order on the Nasdaq. The Nasdaq closing cross is similar to the NYSE closing auction, though each exchange has its own unique rules.