You can share this content with others through social networking sites.
To do so you will be leaving Schwab.com and accessing a third party site.
Please note that Schwab does not endorse these sites or the products and services you might find there.
Order Conditions: How They Can Affect Your Trade
When you place an order you have some control over certain conditions that may affect the price of the trade. In addition to the type of order you're placing you can also specify one or more conditions. However, what may be a good strategy in one situation may be less effective in another. You should understand how time and order conditions can affect the execution of your trade before you place conditions on your order.
Time conditions
The time condition you choose determines when your order expires. Depending on the type of order you place, you can generally request two basic time conditions:
Day order. Day orders are valid for the current trading day only and expire at the end of the trading session if the order hasn't been executed. Day orders placed after the market has closed will be treated as day orders for the following trading day. Orders are generally considered to be day orders unless otherwise specified.
Good-til-canceled order (GTC). A GTC order is valid for an extended period of time, or until it is executed or canceled. At Schwab, a GTC order remains open for 60 calendar days, unless filled or you request that it be cancelled before that time. Unlike a day order, a GTC order can be executed over several days, which can increase commission costs as multiple trades are placed on different days.
Execution conditions
Depending upon your investment objectives, you may want to place certain execution conditions on your order. If you're clear on what you want to accomplish—for instance, testing the market or placing a large order without disturbing the price—an execution condition may be effective. The following are the most commonly used execution conditions.
All-or-none (AON). This condition directs the specialist or market maker to buy or sell the entire order at one time—or trade none of it. For listed stocks, it is available for limit orders only. The advantage of this type of condition is that if your trade is executed, it would be all at one time and you'll be charged only one commission.
However, there are also some disadvantages. For both listed and over-the-counter (OTC) orders, AON restricts flexibility in executing your order. It can delay execution and mean that you miss the market altogether if there are not enough shares available to fill your order. Additionally, an AON order has no standing in the specialist's or market maker's limit order book, which means that your order must wait in line behind orders entered without conditions.
Immediate-or-cancel (IOC). An IOC condition requires the broker to fill as much of the order as possible immediately and then to cancel any remaining portion. It's available for listed limit orders only, and may not be available in all market conditions.
An IOC condition may make sense if you're trying to test the market for interest at a particular price, and you should know very quickly if you have a fill. This condition is not as limiting as AON; however, like other conditional orders, IOC orders are not entered in the specialist's book and may not be executed at all if your specified price is not reached.
Fill-or-kill (FOK). A combination of the AON and the IOC, the fill or kill order is canceled if it cannot be filled immediately and in full. Like IOC, this condition allows you to test the market at a specific time and price. But because you're instructing that the entire order be filled or canceled immediately, you're further limiting the chance that your order will be executed at all.
Minimum order. A minimum order directs the specialist to buy or sell a specified number of shares at a limit price with the condition that the first fill must be for a minimum number of shares. For example, you might place a limit order to buy 5,000 shares at 100 with a minimum of 1,000. This means that you want the order to be filled at a limit price of 100, but that the first trade must be for at least 1,000 shares. Subsequent trades can be for any number of shares unless you further specify that they be bought in certain round lots—say, lots of 1,000.
You might consider a minimum order if you're trading a low-price stock and want to make sure you get enough of a fill to justify the commission. However, like other conditional orders, a minimum order does not have standing in the specialist's limit order book; consequently, the execution may be delayed. It also may not be executed at all if the stock doesn't reach your specified price.
Not-held. Permits the floor broker or market maker to use his or her discretion in executing an order with respect to the timing and/or price of the execution. In theory, this condition is designed to obtain a more favorable price based on the floor broker's or market maker's awareness of potential price direction. Unlike a regular market order, a market not-held order has no assurance of execution.
Not-held is a condition most often placed on large orders of 10,000 shares or more, or on proportionately large orders of a thinly traded stock. A not-held order is manually worked, not electronically executed, to minimize the impact of the order on the price of the stock. Though this can result in a better price, it can take time to execute, and the floor broker or market maker is "not held" responsible for either the price at which your order is filled or the timing of the execution. A not-held condition might be appropriate when your order is large and likely to move the price of the stock, and when price is more important than speed.
Market-on-close. An instruction to execute a market order at the closing price or as near to it as possible.
A market-on-close condition may make sense when you expect the price of a stock to rise or fall at or near the close of trading. It can also be effective if you've tried a limit order during the day that didn't get filled and you want to ensure that the trade gets executed before the close.
While a market-on-close condition generally ensures buying or selling as close to the end of the trading day as possible, the execution price is uncertain, and you may not necessarily get the closing price. Some brokers allow market-on-close orders for listed and Nasdaq stocks, while others only allow them for their institutional clients. These orders must be received or canceled at least 20 minutes before the standard market hours close.
Proceed with caution
Placing conditions on your orders may give you greater control over the outcome of your trade; however, if used inappropriately, you may accomplish the opposite result. Except in certain situations—such as seeking a minimum fill to justify a commission—when you place a condition on an order, you may actually delay order processing and possibly prevent yourself from getting an execution at all. In addition, placing conditions on limit orders means that your order is not eligible for display in the specialist's or market maker's quote.
Nonetheless, a solid understanding of order conditions can help you make decisions that can better fit your trading objectives.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation. Data contained here are obtained from what are considered reliable sources; however, its accuracy, completeness or reliability cannot be guaranteed.
Call us at 866-232-9890
Send us an email
Facebook
LinkedIn
Twitter
Digg