2014issue C0631
Sizing opening and closing auction orders to volume
Editorial reading: treat opening-auction and closing-auction participation as an execution-budget problem first. Scale each opening-only-order and market-on-close-order to a name's typical volume, then test a range-based-exit instead of treating the session clock as the whole system.
- An opening-only-order trades only the opening print: marketable buy and sell interest is netted first, then the price is adjusted until leftover opening-imbalance can be filled.
- A market-on-close-order may be submitted until 15 minutes before the session ends, when remaining buy or sell excess is posted; that closing-imbalance often reflects the day's activity and need not match the opening print.
- For a name averaging 200,000 shares a day, a 6,000-share auction order is treated as large enough to affect the print, while size nearer 1,000 shares or less is the volume-matched-size alternative.
- A prior-session or multi-session range can flatten the position about 10 minutes after the open or at the close; pairing the two auctions is not a complete procedure unless range, opening gap, and closing gap have been examined.
How the opening print clears
An opening-only-order is an instruction that trades only in the opening-auction print and does not rest in continuous trading. Marketable buy and sell interest is netted first, then the price is adjusted until leftover opening-imbalance can be filled.
In the supplied opening example, 50,000 shares to buy against 20,000 shares to sell left a buy excess that required a higher opening price to clear.
How leftover interest is posted at the close
A market-on-close-order is an instruction that trades only in the closing-auction print. These orders may be submitted until 15 minutes before the session ends, when remaining buy or sell excess is posted as the closing-imbalance.
Posted closing-imbalance figures often reflect that day's activity and need not correspond to the opening print.
Scale the print to typical volume
For a name averaging 200,000 shares a day, a 6,000-share auction order is treated as large enough to affect the print. Size nearer 1,000 shares or less is the volume-matched-size alternative described in the archive.
Lower typical volume means fewer shares are required both to move the opening print on entry and to move it back when covering. Intended exposure is described as better built with more symbols at a volume-matched-size than with larger share counts in a single thinner name.
Test a range-based-exit, not the clock alone
A prior-session or multi-session trading range can serve as the exit trigger, either about 10 minutes after the open or at the close. Names are described as often remaining inside 90-day or 180-day ranges.
Pairing an opening-auction entry with a closing-auction exit is not treated as a complete standalone procedure unless each name's range, opening gap, and closing gap have been examined.
All readings on this track · 10 readings
- 2003Listed auction accommodation and open-book execution
- 2004Reading auction signals to choose an open, a close, or a VWAP path
- 2006A leftover clock that licenses offset-only market-at-close
- 2007Carry-adjusted index premium for auction execution
- 2008Two clocks on a public small-cap membership reset
- 2008Opening gap limits and close imbalance orders
- 2010Closing auction snapshots, fair value and pivot levels
- 2012Listed auction imbalance and market-on-close execution
- 2013Taking liquidity to offset HFT queue priority
- 2014Sizing opening and closing auction orders to volume