What is a Limit on Close (LOC) Order? Definition and Rules
A limit on close (LOC) order is an order that enters the closing auction and executes only if the official closing price is at or better than the trader's specified limit price.
What is a Limit on Close (LOC) Order?
A limit on close (LOC) order is a closing auction order that specifies a minimum acceptable price. The order participates in the 4:00 p.m. ET closing auction, but unlike a market on close (MOC) order, it only fills if the auction price is at or better than the limit. A buy LOC order fills only if the closing price is at or below the limit. A sell LOC order fills only if the closing price is at or above the limit. If the auction price misses the limit, the order expires unfilled.
How a LOC Order is Processed
LOC orders follow the same exchange deadlines as MOC orders. On the NYSE, entry is allowed until 3:45 p.m. ET and cancellation until 3:58 p.m. ET. On the Nasdaq, entry closes at 3:50 p.m. ET and cancellation at 3:55 p.m. ET. The exchange publishes imbalance data starting at 3:30 p.m. ET, showing the net direction of closing auction interest.
The exchange's closing auction algorithm matches all MOC and LOC orders plus resting limit orders. The auction price is the price that maximizes the number of shares that can cross. LOC orders with limits that are satisfied at that price fill. LOC orders with limits that are not satisfied do not fill. They do not influence the auction price calculation beyond their presence in the order book.
A key distinction: LOC orders are not guaranteed to fill. A buy LOC at $100 does not fill if the auction price is $100.01. The order expires at 4:00 p.m. ET and the trader holds the position overnight.
Worked Example: TSLA
TSLA trades at $248.50 at 3:35 p.m. ET. A trader holds 500 shares and wants to exit before earnings after the close. The trader enters a sell LOC order with a limit of $248.00. At 3:50 p.m., the imbalance feed shows a net sell imbalance of 150,000 shares. The auction price drops to $247.80. The trader's sell LOC at $248.00 does not fill — the auction price is below the limit. The trader holds the position through earnings. The stock gaps down 8% the next morning. The LOC order protected the trader from selling at $247.80, but the cost of that protection was a $9,920 loss on the overnight gap.
When Traders Use LOC Orders
LOC orders serve traders who want to exit at the close but refuse to accept a price worse than a specific level. A trader with a profit target at $100 who sees the stock at $99.90 into the close can enter a sell LOC at $100. If the auction pushes the price to $100, the order fills. If not, the trader holds.
Institutional traders use LOC orders to participate in the closing auction without accepting unlimited slippage. A portfolio manager rebalancing an index fund can enter a buy LOC with a limit set at the last trade price plus a small buffer. The order captures most of the auction participation while capping the downside.
LOC orders are also useful for traders who want to avoid the imbalance-driven price move. A trader who believes a buy imbalance will push the close higher can enter a sell LOC above the current market. If the auction reaches that price, the trader sells at a premium to the last trade.
Limitations and Common Misconceptions
LOC orders do not guarantee a fill. The limit price is a hard constraint. If the auction moves against the order, it expires unfilled. Traders who need certainty of execution must use MOC orders.
LOC orders do not protect against post-close moves. The order fills at the close and the position is gone, but the trader still faces overnight gap risk on any unfilled portion.
A common misconception is that a LOC order with a limit at the last trade price will fill. The auction price can deviate from the last trade. A buy LOC at $100 does not fill if the auction crosses at $100.01, even if the last regular trade was $100.