What Is Market on Open Order?
A market on open (MOO) order is a type of order placed by investors or traders that instructs a broker-dealer to buy or sell a security at the prevailing market price when the primary exchange officially opens for trading. As part of order types within financial markets, a market on open order does not specify a price limit, meaning it prioritizes execution at the opening bell, regardless of the opening price. This contrasts with other order types that might set a maximum or minimum acceptable price. MOO orders are crucial for participating in the opening auction process that sets the day's initial trading price for equities.
History and Origin
The concept of executing orders at the opening of a trading session is intrinsically linked to the evolution of stock exchanges and their opening mechanisms. Early forms of stock trading involved "call trading sessions" where stocks were announced one by one and traded sequentially. Continuous trading, as we know it today, was introduced later, in 1871, by exchanges like the New York Stock Exchange (NYSE).12
The formalization of opening prices and the development of specific order types like the market on open order emerged as exchanges sought to manage the concentrated interest and potential volatility at the start of each trading day. The NYSE, for instance, traces its origins to the Buttonwood Agreement in 1792, establishing rules for trading and commissions.11 Over time, as trading became more sophisticated and electronic systems began to replace manual processes, specialized order instructions like MOO orders became standard tools for participants aiming to execute trades precisely at the market's initial print. The opening auction process, which determines the initial price, aggregates buy and sell interest, including market on open orders, to facilitate price discovery for the day.
Key Takeaways
- A market on open (MOO) order is designed to be executed at the market's opening price.
- MOO orders do not have a price limit, meaning execution is prioritized over price certainty at the open.
- They are commonly used by traders and investors who wish to react to overnight news or pre-market events.
- The large volume of market on open orders can significantly influence a security's opening price and subsequent trading volume.
- MOO orders are subject to the opening auction mechanism, which determines the official opening price.
Interpreting the Market on Open Order
A market on open order signifies a strong desire by the investor to participate in the market at the earliest possible moment of the regular trading session. This type of order is interpreted by the market as an unconditional instruction to trade at the determined opening price. It reflects the sender's belief that the opening price, whatever it may be, is an acceptable or desirable entry/exit point for the position, perhaps due to expectations of significant post-open movement following news or earnings releases.
The presence of a large number of market on open orders for a particular security can indicate substantial pre-market interest or sentiment, potentially leading to a notable price gap from the previous day's close. These orders contribute to the imbalance of supply and demand that market makers and designated market makers (DMMs) analyze during the pre-opening period to determine the optimal opening price for maximizing matched volume.,10
Hypothetical Example
Consider an investor, Sarah, who owns shares in TechCo. Overnight, TechCo announces groundbreaking news about a new product that is expected to significantly boost their earnings. Sarah believes that the positive news will lead to a substantial rise in TechCo's stock price at the open, and she wants to purchase more shares immediately to capitalize on this anticipated jump.
At 7:30 AM EST, before the stock market opens at 9:30 AM EST, Sarah places a market on open order with her broker-dealer to buy 100 shares of TechCo. She does not specify a maximum price because her primary goal is to ensure her order is executed as soon as trading begins, regardless of the opening price.
When the market opens at 9:30 AM, the opening auction process for TechCo shares aggregates all pending buy and sell orders, including Sarah's market on open order. Due to strong demand spurred by the news, TechCo's opening price is determined to be \$150 per share, up from yesterday's closing price of \$140. Sarah's order is filled at \$150 per share, and she now owns an additional 100 shares of TechCo, having successfully executed her trade at the day's opening price.
Practical Applications
Market on open orders are primarily used in situations where traders and investors want to ensure participation in the opening trade of a security, often to capitalize on or react to information released outside of regular trading hours. This includes corporate announcements like earnings reports or dividend declarations, significant macroeconomic data, or geopolitical events that might influence market sentiment.
For instance, an asset manager might use a market on open order to adjust portfolio holdings rapidly following a major news event that affects a broad range of equities. Similarly, individual investors might use them for an initial public offering (IPO) to ensure they buy shares at the inaugural trading price.9 The NYSE's opening auction mechanism specifically facilitates these orders, processing them alongside limit orders and market orders to establish the opening price.8 Regulations set by bodies like the Securities and Exchange Commission (SEC) continuously evolve to enhance market transparency and execution quality for various order types, including how order execution information is disclosed by broker-dealers.7
Limitations and Criticisms
Despite their utility, market on open orders come with significant limitations, primarily concerning price uncertainty. Since a market on open order does not specify a price, the execution price can be considerably different from the previous day's close, especially if substantial news has emerged overnight. This lack of price control can lead to unfavorable fills if the opening price is significantly higher for a buy order or lower for a sell order than anticipated.
Critics also point out that relying solely on market on open orders can contribute to increased volatility at the market open, as a large influx of such orders can create substantial buying or selling pressure, leading to price swings. While exchange mechanisms like opening auctions are designed to manage this by facilitating price discovery and ensuring liquidity, unforeseen imbalances can still occur. Academic research on order flow highlights that financial markets exhibit persistence, where large orders are often split and executed incrementally, but rapid, large MOO orders can still create immediate impact.6 Furthermore, in extreme cases of imbalance, exchanges may even delay the opening of trading for a specific security to allow market makers to establish a more orderly market, which could delay the execution of the market on open order.5
Market on Open Order vs. Limit on Open Order
The market on open (MOO) order is often confused with a limit on open order (LOO) due to their shared focus on the market opening. The critical distinction lies in price control.
| Feature | Market on Open Order (MOO) | Limit on Open Order (LOO) |
|---|---|---|
| Price Control | No price limit; executes at the prevailing opening price. | Specifies a maximum buy price or a minimum sell price. |
| Execution Certainty | High certainty of execution, assuming sufficient liquidity. | Less certain of execution; only fills if the opening price meets or beats the specified limit. |
| Priority | Prioritizes execution at the open. | Prioritizes price control over immediate execution. |
| Risk | Risk of unfavorable opening price. | Risk of non-execution if the opening price is outside the limit. |
While a market on open order guarantees participation in the opening auction, a limit on open order provides protection against an unfavorable opening price by specifying the acceptable price range. Traders choose between them based on whether immediate execution or price certainty is their primary concern at the market open.
FAQs
When can a market on open order be placed?
Market on open orders must typically be placed before the market officially opens for the day. For example, on the NYSE, MOO orders can generally be entered between 7:00 a.m. and 9:28 a.m. EST on trading days.4
Is a market on open order guaranteed to execute?
A market on open order is generally guaranteed to execute at the opening price, provided there is sufficient liquidity for the security. However, if there's an extreme imbalance of buy or sell orders, an exchange might delay the opening of the security, which would delay the execution of the market on open order.,3
How does news affect a market on open order?
News released outside of regular stock market hours can significantly impact the opening price of a security. A market on open order will execute at this potentially new, news-influenced opening price, which could be substantially higher or lower than the previous day's close.
Can I cancel a market on open order?
Generally, market on open orders can be canceled up until a certain cut-off time just before the market open, often a few minutes prior to the official opening bell. For instance, on NYSE American, requests to cancel or cancel and replace MOO orders are rejected starting at 9:29 a.m. ET.2
Why would an investor choose a market on open order instead of a regular market order?
An investor would choose a market on open order specifically to target the opening price determined by the exchange's opening auction. A regular market order placed after the open would execute immediately at the then-current trading price, which might be different from the official opening price and could have already moved significantly. MOO orders ensure participation in the first trade of the day, capitalizing on or reacting to the overnight sentiment that is settled during the opening auction.1