Lately, I have done some research trying to develop some new daytrading strategies. I have tested many trading strategies that buy or sell at the open (OPG). The exit has been after two hours or on the close (MOC).
An OPG trading strategy limits slippage. Likewise, a MOC trading strategy does the same. In this article, we explain you how to lower trading commissions (based on our trading experience).
OPG trading strategy (OPG trading) and MOC trading strategy (MOC trading)
Let’s start with defining an OPG order. What is an OPG order?
OPG order
An OPG order buys or sells at the opening price. Depending on the exchange, there is an auction for a stock that is regarded as the “opening print”.
How do market-on-open orders work? This price is where there is a balance of buy and sell orders. Brokers and market makers send in their orders and the opening print is either executed manually or electronically (depending on the exchange). The orders sent for execution can be both market and limit orders. Sometimes there is an imbalance in a stock, and the price might be much higher or lower than it otherwise would be.
Let’s continue to a MOC order. What is a MOC order?
MOC order
How do market-on-close orders work? MOC is an abbreviation for “market on close” (MOC). This works much the same way as an OPG order except that it’s on the close – not at the open.
Why use OPG and MOC orders?
There are two huge advantages to using OPG and MOC compared to exiting during the rest of the trading day, for example, by sending market or limit orders: what you see is what you get, and commissions are lower (this relates to NYSE stocks only).
- There will be no slippage in an OPG trading strategy, compared to your backtests, unless your orders move the market, and that is unlikely unless trading many thousand shares or illiquid stocks. The same goes for MOC trading strategies. And if you move the market, it won’t be much. You will get the opening print and the last print of the day on NYSE. My average slippage is around 0.5 cents per share if I exit one hour into the trading day. If I have in total 10 000 shares in open positions, it will cost me 50 USD to exit the positions in slippage. This adds up over a year!
- Commission rates will be lower because I remove a lot of liquidity when exiting for example one hour into the trading day. In 2012 my total commission rate is .0028 per share traded. Trading solely with MOC instead I save 0.001 per share traded compared to exiting after one hour of trading. Over many years that is a substantial amount of money.
If trading 10 000 shares one way per day on average, this equals 60 USD per day in savings. And 10 000 shares is not much at all. Most daytraders trade a lot more than that.
This is something to think about if you’re day trading.
Relevant reading:
