Series 3: 6.3.1.3.4. Stop On Close Orders

6.3.1.3.4. Stop on Close Orders

A Stop on Close order is a stop order that can be triggered only during the close of trading. If the stop price is hit before the last fifteen minutes of the trading session, the order will not be executed. The stop on close is an end-of-day stop that is manually executed within minutes of the close or on the open of the next trading session. It anticipates an end-of-day recovery when trading activity will pick up before the close.

Example: A speculator has earned a considerable profit on his long crude oil contracts, currently trading at $49.83. Anticipating further gains but wanting to protect the profits he has earned, he decides to issue a sell stop order. Yet wary of the extreme volatility with which the commodity has been trading, he issues a sell stop on close at $46, thinking that the close will be a more accurate reflection of crude oil’s true market value. Over the next few weeks, crude oil fluctuates between $45 and $51 but always closes the day well above the stop price. When the stop on close is finally triggered, the market blows through the stop price, and the order executes at $44.51.