What Is a Close Sell Imbalance?

The stock market aims to match buyers and sellers as share prices move up and down, but at the end of the day, there will be a closing price for every stock. During market hours, traders can submit orders that will only be filled at the close of the trading day, when the closing price is determined. These "on close" orders can lead to an imbalance on the buy or sell side of the ledger, known as a close sell imbalance.

If a trader wants to buy shares at the last price of the day, he can enter a buy, sell or limit on close order. A buy-on-close will be filled at the last price of the day, as long as there is a sell-on-close order in the system with a matching number of shares. Limit buy or sell orders can only be filled if the closing price is at or better than the set limit price and there is an opposing "on close" order that can paired to the limit order. On-close orders can be withdrawn up until 15 minutes before the stock exchange closes.

Starting one hour before the stock market closes, at 3 p.m. EST, the New York Stock Exchange releases and continues to update a closing imbalance report. A close sell imbalance on the report means there are more sell-on-close orders in the system for a particular stock than there are buy-on-close orders. The report is released to draw in orders on the opposite side of any imbalance so as many "on-close" orders as possible can be filled when the exchange closes for the day.

If an imbalance exists on a stock, the stock exchange will only accept the opposite type of on-close orders during the final minute of the market day. For example, if there is a close sell imbalance, starting at 3:59, only buy-on-close orders will be accepted up to the number of shares counted in the sell imbalance. The stock exchange wants to minimize or eliminate imbalances when the market closes, and the exchange attempts to match up all of the on-close orders in the system.

Under the supply-and-demand forces that determine stock prices, sell orders put downward pressure on share values. A close sell imbalance shows an overabundance of traders that want to sell. When they see the imbalance, buyers may come in on the opposite side of those sell orders with orders to buy at a lower price. As the end of the stock market trading day approaches, a close sell imbalance may be a sign that the stock price will end the day at a lower price than the current trading value.