Limit-On-Close Orders: Every Brokerage Should Offer Them!

One of my trading systems is a mean-reversion system that trades at the Close for both buy and sell signals. I.e. I buy if the stock is closing below a certain point, and sell if it’s closing above a certain point. Typically I can be in front of my computer near the closing bell, so putting in a Market-On-Close order is simple when the threshold has already been met and looks likely to sustain until the closing bell.

However this past Tuesday, I got bit in the butt (so to speak). I was long a particular stock and it was near my ‘sell’ threshold but not quite past it. I was unable to watch it through the last minutes of trading because of a prior commitment, and sure enough it popped up past my threshold at the end of the day.

I totally missed my sell signal as a result. And now the stock is down a few percentage points and I have no statistics for the likelihood of it recovering from this point.

Unfortunately the brokerage I used for this trade (TradeKing.com) does not offer what is called a “Limit-On-Close Order.” This would have avoided a lot of grief.

A Market-On-Close (MOC) order is much more common. You ask your brokerage to sell or buy your stock at the end of the day, for whatever the closing price ends up being. A Limit-On-Close order is little more complicated, but hardly rocket science. An LOC simply states that if the closing price is at or above your limit (when selling), it sells for the closing price. If buying using an LOC, the closing price must be at or below your limit price to execute.

Could I have used a regular limit order? The difference between an LOC and a simple limit order is that a limit order can be hit any time during the day, and you will get your price—but no better. If your stock has shot up 3% and you think it might go further before the closing bell, you don’t want to put a limit order in for that 3% mark…it’ll sell right away and you won’t see any additional gains. The LOC order allows you to potentially gain some extra profits without having to sit watching the ticker all day.

[TradeKing just responded to my email as I’m writing this, coincidentally. They say they’ll consider it for the future. We’ll see….]

So TradeKing doesn’t offer this. I know many of the other brokerages only offer the basics such as limit, MOC etc. But there are at least SOME brokerages that offer LOC orders:

Interactive Brokers (but they require a big account)

Questrade (Canada)

Options House

It might be worth it for me to switch (again!) so that I don’t lose money on missed trades.

Do you know of any other brokerages that offer a Limit-On-Close order? If so, please leave info in the comments section. Thanks!