What Is a Limit-on-Open Order (LOO)?
A limit-on-open order is a type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of order is good only for the market opening and does not last for the whole trading day.
- A limit-on-open (LOO) order is a limit order that is to be executed at the market open.
- Limit orders control the price that is paid for a security, or what price a security is sold at. The additional "on open" parameter means the order is only executed if the opening price is within the price limit of the order.
- Traders may use LOO's to take advantage of increased liquidity in an issue right at the open.
How a Limit-on-Open Order Works
Limit-on-open orders are one of several conditional orders available to investors. They are closely comparable to limit-on-close orders since both are executed at the open or the close.
Investors and traders use conditional orders to specify prices at which they are willing to buy and sell. Limit orders provide a way for investors to set specific investing parameters and also to manage risk. Active traders can also use limit orders to make multiple bets at various different price points in an active trading strategy.
Limit-on-Open Order Execution
A limit-on-open order is a conditional limit order that investors can use when seeking to bet on a security’s price at the open of trading. A limit-on-open order can be used to buy or sell a security. It is entered as a standard limit order, but it also has a specified condition for time. As the name suggests, limit-on-open orders are conditioned for execution only at the market’s open.
Limit-on-open orders and limit-on-close orders are unique in that they offer execution at a specified time during the trading day; the open or the close of trading. A limit-on-open order allows an investor to place a bet on the next trading day’s opening price. If a limit-on-open order is not executed at the market’s open it is canceled. These orders are generally used by traders who believe that the market’s open will offer the best timing and liquidity for their particular trade.
Example of a Limit-on-Open Order
For an example, consider a trader who holds 1,000 shares in ABC stock and wants to sell at the market open but also wants to guarantee that they will receive at least $50 per share. The trader therefore uses a limit-on-open order to sell the shares at a limit of $50. If at open the shares trade at or above $50, the order will be executed, and if they trade below, the order will not be filled and then will be canceled.
A limit-on-close (LOC) order works in the same way, but at the close of trading. An investor can place a limit-on-close order with a specified price for execution at the market’s close. A trader placing this type of order believes that the market’s close will offer the most favorable time and liquidity for their trade. Both a limit-on-open order and a limit-on-close order allow the trader to control the exact timing of execution.