Imbalance Only Orders (IO)

  

Categories: Trading

Regular hours for stock trading in the U.S. last from 9:30 am EST until 4:00 pm EST every weekday (as long as there's not a holiday or the funeral for an ex-president). However, some trading takes place before the open and after the close.

The movement that takes place during these off-hours periods gets figured into the opening price the next day. So a stock's price at the close at 4:00 pm on Monday might not be the same price as when it gets time to open for trading at 9:30 am on Tuesday.

This movement sometimes makes it complicated to calculate prices at the open and at the close.

People try to rush in orders before these points, either to get the order in before the end of pre-market trading (for the open) or the end of regular trading (for the close). The process makes imbalances at the open and close more likely.

An "imbalance" means more orders exist on one side of the ledger than the other. Either there are more buy orders than sell orders, or more sell orders than buy orders.

Imbalance Only Orders are used by the NASDAQ to even things out at these crucial times. They are limit orders that only activate if an imbalance occurs (hence the name, "Imbalance Only"). The goal is to create liquidity, making smoother price action at the open and close of trading.

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