What Is a Limit-on-Open (LOO) Order?
A limit-on-open (LOO) order is a type of limit order to buy or sell shares at the market open if the market price meets the limit's condition. This type of order is good only for the market opening and does not last for the whole trading day.
A LOO order can be compared with a limit-on-close (LOC) order and contrasted with a market-on-open (MOO) order, which is a non-limit market order that is executed at or just after the opening of a stock exchange.
- A limit-on-open (LOO) order is a limit order that is to be executed specifically 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 orders to take advantage of increased liquidity in an issue right at the open.
Understanding a Limit-on-Open (LOO) Order
LOO orders are one of several conditional orders available to investors. They are closely comparable to LOC 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 LOO 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 LOO 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 the timing of the order. As the name suggests, LOO orders are conditioned for execution only at the market’s open.
LOO and LOC orders are unique in that they offer execution at a specified time during the trading day; the open or the close of trading. A LOO order allows an investor to place a bet on the next trading day’s opening price. Generally LOO orders must be submitted prior to 09:28 a.m. Eastern time, two minutes before the market opens. If a LOO order is not executed at the market’s open, it is canceled.
A LOO order will only be executed if the open price matches the limit order price or better. Partial orders may or may not be filled depending on the brokerage and exchange order allowance.
Example of a Limit-on-Open Order
As 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 LOO 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. Conversely, if they trade below $50, the order will not be filled and then will be canceled.
Limit-on-Open (LOO) Order vs. Limit-on-Close (LOC) Order
A LOC order works in the same way but at the close of trading. An investor can place a LOC 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 LOO and a LOC order allow the trader to control the exact timing of execution.