The opening of the exchange applies to an open market order to participate in the auction. Since the MOO order is a market order, it guarantees fulfillment, but not the price.
Interactive intermediaries set the order in the open market as follows:
“An open market (MOO) order automatically combines the current OPG time with a market order to create an order that is delivered at the open market and replenished at the market price.”
The specific mechanisms of MOO orders vary depending on the exchange. NYSE MOOs are slightly different from Nasdaq MOOs.
You can find more information about the Nasdaq auction here and information about the NYSE opening auction here.
What is an open auction?
On each open trading day, an auction is held by market makers to determine the opening price of each share. Each exchange hires market makers to reduce volatility and provide liquidity.
To better achieve their goals, they will have special privileges that day traders cannot get, but the exchanges will try to balance it out, forcing them to facilitate trading even if they don’t want to.
These market makers used to be called professionals, but now they are known as designated market makers (DMMs).
In addition to keeping markets in order, DMMs are responsible for facilitating the opening and closing of auctions.
Because open and closed trades have the highest activity periods, they reduce the volatility that can occur by providing liquidity to the other side of a trade by one large order from a mutual fund or ETF provider.
Overnight and early in the morning, traders are entering buy and sell orders at countless prices.
Some of these are market orders, others have limited prices. The task of the DMM is to balance supply and demand. Many times there is an imbalance on one side of the market.
For example, a purchase order may contain 10,000 shares in XYZ shares, but a sale order may contain 30,000 shares. When such a balance exists, DMMs buy to offset the imbalance and keep the orderly market open.
As a personal trader, you can also see the order disparity open and closed, although this requires you to subscribe to the data through your broker.
Some traders track imbalance data over days or weeks to determine which stocks or sectors the big money will fall into.
Using the order flow data available to them, DMMs determine the opening price that clears the market, which you can fill with an open order in the market.
When you place an order in the market, you receive a price that the DMMs set as a “fair value” based on the current order flow.
You are guaranteed execution because it is a market order, but not at any price.
Do you guarantee to get the opening price?
There is an old and currently non-functioning trading blog called “Puppet Master Sales” that wrote a piece called “Quality of Performance in Outdoor and Indoor”.
He analyzed the difference between his fill price and the actual opening / closing price for 846 orders in the open and closed market. In his opinion, his MOQ orders were almost always filled in the final edition, while his MOO fillings were quite different.
Here he presented a distribution that reflected the deviations between his replenishment price and the actual open and closed prices:
This survey was conducted in 2008. Probably a lot has changed in 12-13 years, so it’s hard to know what these findings will look like today, but at least here possible deviating from the opening and closing of the list for any reason.
I am sure that the deviations could have been explained in a few minutes related to the NMS Regulations or the specific mechanisms of each exchange, but this is beyond the scope of this article.
The poster on the Elite Trader forums can be any deviation because the opening pressure was not through the NYSE and NYSE MOO orders are filled in the first NYSE edition, not the first NMS edition. Read here.
In addition to personal preferences, it can be used in an open market for retailers, possibly because they need to get orders or opening editions that affect the market.
Under market influence, if you trade with nano stocks, even 1,000 stock orders can have a drastic impact on the market, so it may make sense to use liquidity that is open or close to trading.
On the other hand, some quantitative systems require you to enter an open space. Ordering on the open market is the best way to fit your backtesting if you buy one of these systems.