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.
Related or Semi-related Video
Finance: What are At-the-Close Order and...24 Views
Finance a la shmoop.. What are at the close order and at the opening orders
Well simply put they're a way of buying and selling stocks and bonds and [Shmoop video on PC monitor]
they're really a hybrid form of a limit order only instead of limiting the order
of a hundred shares of Mickey D's at 45 bucks or better the "limit"
is time-based that is it is placed a minute or less from the close of the
market like 3:59 p.m. New York time or the open of the market like 9:31 a.m. New
York time got it so why would someone do this kind of limit order well if a [Man discussing limit order]
company that day before had printed what looked like a really good quarter but
upon deep inspection the investor who owned the shares thought otherwise and [Man inspecting company folder]
you know wanted to dump them well then that investor would want to take
advantage of a high opening print and just sell it whatever the price was a
minute or two after the open making the bet that the stock would then trade down
after bigger smarter better analysis was published on the stock itself and then
everyone else went to dump it - so what about an at the close order well kind
of inverse of the same thing here a company's quarter will be announced at [4:28pm shown on digital clock]
4:30 p.m. New York time tons of excitement leading up to it so
"everyone" wants to be long the stock ahead of earnings but you think
earnings will disappoint like you know buy the rumor sell the actual news kind
of vibe so you want to hold the stock until the last minute that day and then
you just give the guidance to sell the stock that last minute of trading or at [Investor sells stock to market]
the close and you're out and now we have arrived at the close of this video... Adios! [Man waving on stage]
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