Market on close orders (MOC Orders) are a useful order type for helping you secure a price at or close to the close of the day. They can help you get into or out of the market right at the closing price without having to place a market order immediately when the market closes.
Although not available in all markets or by all brokers, if you have access to them they warrant consideration for inclusion in your trading system. For example, some traders will want to exit at the close if a certain price level was breached during the trading day. This could be used to execute either a trade entry signal or a trade exit signal.
A MOC order is simply a market order which is placed when the market is open, but before a certain time which is set depending on the exchange. The MOC order remains dormant until near the close at which time it becomes active.
Once the MOC order becomes active, it behaves like a normal at-market order.
The main benefits of MOC orders is that you do not need to place a market order right at the close to get the closing price. This is useful in many situations where intraday price action provides you with the trading signal to place a trade at the close of the day.
This may be useful when you have a full time job or other responsibility that may at times prevent you from being at the computer when the market closes. It is also useful for trading systems where placing a trade the close of the day offers better profitability than waiting for the open the following day.
Being able to place market on close orders is also useful if you want to trade on some foreign exchanges that are not in your time zone. It is also useful if you want to place a trade but are not sure that you will be in front of your computer or able to call your broker just before the market closes.
This type of order can allow you to design a trading system that uses the closing price with some confidence that you will actually be able to execute your trades as the closing price.
The potential drawbacks of market on close orders are similar market on open orders...
... If you are going to place market on close orders and not be present at the close of the market you really do not know what price your order will be filled at. You must ensure you understand the full ramifications of this because markets can move a long way during the trading day if some extreme event occurs or there is a major announcement.
If they are available for you to use on the exchange and with the broker you use, Market On Close orders can be a helpful tool to ensure you can trade at the closing price. This certainty enables you to develop trading systems which trade at the close knowing that you should be able to replicate system results in the real world. They can add flexibility and also provide you with some certainty that your order will be placed at the close in case you are not at your computer when the market closes.
Regardless of how or why you use different order types, they should all be documented with reasons and instructions in your trading plan to ensure you (or the person placing trades for you) know exactly what you need to do in all situations. Review our discussion on how to build a winning trading plan here.
If you do not yet have a completed trading system then I recommend you read our description of the Trading System Development process before getting started.
I also suggest you seriously consider Van Tharp's home study program "How to develop a winning trading system that fits you". This program will guide you through all of the steps required to build a profitable trading system that you feel comfortable trading because it fits your personality and needs.
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