Limit on open: what an LOO order is, and the conditions it carries
An LOO order trades in the opening auction, but only if the opening price is good enough for you. What the order does, the two conditions attached to it, and why missing a fill matters more on an exit than on an entry.
By Baris Demirci · · Rev00
The idea
Most stock exchanges start the day with an opening auction, where orders that built up overnight are matched at one price, the official opening price. There are two common ways to take part:
- Market on open (MOO). Buy or sell at the opening price, whatever it turns out to be.
- Limit on open (LOO). Buy or sell at the opening price, but only if it is at or better than a limit you set.
An LOO order is an MOO order with a price condition attached. It is the morning twin of the limit on close order.
The two conditions
An LOO order carries two conditions, and both must be met.
1. A timing condition: only at the open. The order trades only in the opening auction. If it does not fill there, it is cancelled. It does not stay on the book for the rest of the day.
2. A price condition: only at your limit or better.
- A buy LOO fills only if the opening price is at or below your limit.
- A sell LOO fills only if the opening price is at or above your limit.
When it fills, it fills at the opening price, not at your limit.
An example
A fund closed last night at $50.00. Before the open you place a buy LOO with a limit of $49.50.
| Official open | What happens |
|---|---|
| $49.20 | Filled at $49.20, which is better than your limit |
| $49.80 | Not filled. The open was above your limit, so the order is cancelled |
| $49.50 exactly | May fill in full, in part or not at all |
As with every auction, orders that accept any price, and orders with better limits, are matched before yours. When the open lands exactly on your limit, you may get some of your shares or none.
Why the open makes the limit matter
The open is where overnight news arrives, so the opening price can gap well away from the previous close. That is what gives an LOO order its two uses:
- Protection from a gap. An MOO order accepts any opening price. An LOO order puts a ceiling on what you pay, or a floor on what you sell for, however far the market gaps.
- A condition built into the order. “Buy only if it opens at or below this level” can be written straight into the order. The auction checks it for you.
Rules of the auction you need to know
- There is a cutoff. Exchanges stop accepting, changing or cancelling opening-auction orders shortly before the open, and brokers often set an earlier cutoff of their own.
- You can place it the night before. Most brokers accept LOO orders after the close or in the early morning.
- Not every broker offers it. Some brokers do not offer LOO at all, or only for some instruments. A plain limit order placed before the open is not always sent to the auction. Ask your broker which happens.
Entries and exits are not the same
Missing a fill means different things depending on which side of a trade you are on.
- On an entry, a missed fill means you are not in. You miss the trade. That can be frustrating, but you have not lost anything.
- On an exit, a missed fill means you are still in. If a sell LOO does not fill because the market gapped down through your floor, you still hold the position, after the very kind of move you wanted to avoid.
That is why systems often use limits on entries and plain market orders on exits. A system that does use a limit to exit needs a written rule for what happens when the exit does not fill.
What the backtest has to do
A backtest of a system that uses LOO orders has to check every order against the opening price. If the open was not at or better than the limit, there was no trade. It also has to decide what happens when the open lands exactly on the limit, since a real order might not fill then.
Check what your data calls the open, too. Some data records the first trade of the day rather than the official auction price. The two are usually close, but a limit sits right on that boundary, so small differences decide whether a test fills or not.
The short version
An LOO order trades only in the opening auction, and only if the opening price is at or better than your limit. When it fills, you get the opening price. It protects you from a gap and lets you build a condition into the order. In exchange you accept missed fills, which are harmless on an entry and dangerous on an exit, and a backtest that has to model them honestly.
Written for people building their own systematic portfolio management process. Nothing here is a recommendation to buy or sell anything. See the disclaimer.