# Closing auction

Closing auction is an exchange process that matches eligible buy and sell orders at a single price near the end of the trading session, establishing the official closing price.

## What it means

At the end of a trading session, an exchange can bring eligible orders together rather than match them one by one as they arrive. Its closing auction applies the exchange’s rules to those orders and produces one execution price for matched shares. That price generally becomes the stock’s official closing price on that exchange.

An auction order is not necessarily filled. Eligibility, order type, price limits, submission deadlines and tie-breaking rules vary by exchange. A market-on-close order typically seeks execution at the auction price if eligible; a limit-on-close order also sets a price boundary. Neither guarantees a fill under every circumstance.

## How it is calculated

There is no universal formula that selects the closing price: exchanges use their own matching and tie-breaking rules. A useful calculation at any **candidate price** is:

`Executable volume(p) = min[eligible buy shares priced at or above p, eligible sell shares priced at or below p]`

- `p` is a candidate auction price, in US$ per share in this example.
- `Executable volume(p)` is the number of shares that could match at that price.
- Eligible buy and sell shares are order quantities, measured in shares; orders without a price limit are treated according to the exchange’s rules.

The exchange seeks a price under its auction rules, commonly considering matched volume and any remaining imbalance. Maximizing executable volume alone may leave several possible prices; the applicable tie-breakers determine the result.

## Worked example

Suppose a hypothetical US stock has the following eligible limit orders at the close. Ignore other order types and assume, solely for this example, that the auction chooses the price with the greatest executable volume.

| Side | Limit price | Shares |
| --- | ---: | ---: |
| Buy | US$50.02 | 600 |
| Buy | US$50.00 | 400 |
| Sell | US$49.99 | 500 |
| Sell | US$50.01 | 300 |

1. At US$50.00, both buy orders qualify: 1,000 shares. Only the US$49.99 sell order qualifies: 500 shares. Executable volume is `min(1,000, 500) = 500 shares`.
2. At US$50.01, only the US$50.02 buy order qualifies: 600 shares. Both sell orders qualify: 800 shares. Executable volume is `min(600, 800) = 600 shares`.
3. Under the stated simplified rule, the closing price is US$50.01 and 600 shares match. The 200-share excess on the sell side is an imbalance; which specific orders fill depends on auction priority rules.

Real exchange rules may consider additional prices, order types and tie-breakers, so this example does not describe a particular exchange’s procedure.

## Why it matters before you trade

The last continuously traded price is not necessarily the auction price. New orders and imbalances can change the price near the close, and a large order relative to available liquidity can affect execution. A limit can constrain the price but may leave shares unfilled; an order without a limit can face an uncertain auction price.

Before placing an auction-eligible order, check your broker’s supported order types, cutoff times and handling of unfilled shares, along with the exchange’s rules. For cost comparisons, distinguish the closing price from the price observed when the trading decision was made: a fill at the official close does not imply zero slippage or zero transaction costs.

## How PreTrAIde uses it

The product facts do not state that PreTrAIde models closing-auction order books, predicts an auction price or routes auction orders. Its pre-trade analysis relates to an intended closing-auction trade by assessing a stock basket’s execution conditions before an order is placed. It estimates spread, participation in daily volume and market impact, and provides execution scores and a suggested execution strategy. These estimates are not an auction fill-price quote. PreTrAIde never places an order; users trade through their own broker.

## Common mistakes

- **Treating the closing price as a guaranteed fill.** Eligibility and matching determine whether an order executes.
- **Assuming every exchange runs the same auction.** Cutoffs, permitted orders and price-selection rules differ.
- **Equating the close with the last regular-session trade.** The auction can establish a different official price.
- **Ignoring partial fills and imbalances.** More shares offered on one side than can match can leave orders unfilled.
- **Calling an auction fill cost-free.** Compare it with the relevant decision-time benchmark and include applicable fees.

---
Source: https://pretraide.com/glossary/closing-auction