What Is a Market-On-Open Order (MOO)?
A Market-On-Open (MOO) order is an order to be executed at the day's opening price. Market-On-Open (MOO) orders can only be executed when the market opens or very shortly thereafter, but must provide the first printed price of the day.
- Market-On-Open orders allow a trader to be guaranteed the first printed price.
- These orders do not guarantee that the price will be higher or lower than the previous closing price.
- These orders influence where the market may open.
How a Market-On-Open Order Works
MOO orders on the Nasdaq can be entered, canceled or amended from 7 a.m. to 9:28 a.m. Eastern Time, Monday to Friday. MOO orders on the NYSE can be taken any time up until 9:28 a.m. Eastern Time. Execution of MOO orders is guaranteed, providing there is sufficient liquidity, but there is no guarantee what the price will be.
To execute a market-on-open order, a trader enters a buy order while the market is closed and at least two minutes before the market opens. In those two minutes, market-making sellers will gauge how many orders are waiting for execution at the open, and what the nature of those orders might be (large or small, buy or sell, Limit, Stop or Market). They will adjust their bids and offers based on this information and the first trade of the session will establish the opening price.
The opening price should have taken all MOO orders under consideration. For example, if there were a large number of MOO orders, the opening asking price will be significantly higher than the closing price of the day before.
Traders and investors use MOO orders when they believe market conditions warrant buying or selling shares at the open. For example, during earnings season – the period when companies report their quarterly results – most companies report results after markets close. Significant price movement typically follows on the next trading day. The MOO order does not specify a limit price, unlike a Limit-on-Open (LOO) order that specifies one, and is the sister order to the Market-on-Close (MOC) order.
Companies that exceed expectations generally see their stocks rise in price, while companies that miss estimates see their stocks decline. MOO orders may also be used by brokers to close error positions. Often errors are not discovered until trades get booked to accounts at the end of the trading day. A MOO order ensures the error is closed out as early as possible on the following day to minimize risk.
Example of a Market-on-Open Order
Assume an investor holds 1,000 shares in Intel, which has just reported that its sales and earnings for the next quarter will be below analysts' estimates. The stock trades lower in the after-hours market, and the investor thinks it will continue to decline sharply throughout the next day. They would, therefore, enter a MOO order since they believe the stock will open tomorrow at a lower price but close even lower.
The risk is that the investor receives Intel's opening price, irrespective if it's down 5%, 10% or 20%. Alternatively, if the investor thinks that Intel may recover somewhat throughout the next trading day and would rather hold their position than take the opening market price, he or she could enter an LOO order, which specifies the price at which they are willing to sell their Intel shares. This guarantees the stock is not sold below the investor's limit price. For instance, if the investor places an LOO order with a limit of $50, the shares would be sold on the open at the market price, providing the stock is trading at $50 or above.