An Open Order is a buy or sell order for securities that has not yet been executed or canceled. Such orders remain in the market, awaiting fulfillment under the specified conditions. These orders are often placed with certain instructions or timeframes, such as being Good-till-Canceled (GTC).
Characteristics of Open Orders
- Pending Execution: The defining characteristic of an open order is that it is pending execution and thus is actively being watched for fulfillment.
- Types: Open orders can take various forms, such as Market Orders, Limit Orders, and Stop Orders.
- Validity Period: The order remains active until executed, manually canceled, or expires based on predefined conditions.
Types of Open Orders
Good-till-Canceled (GTC) Order
A Good-till-Canceled (GTC) Order is an open order that remains in effect until it is executed or canceled by the trader. Unlike day orders which expire if not filled within the trading day, GTC orders will stay active indefinitely or until the broker’s specified time limitations.
Market Order
A Market Order is an instruction to buy or sell a security immediately at the prevailing market price. Though typically executed quickly, the order is considered “open” until it has been fulfilled.
Limit Order
A Limit Order specifies the maximum price at which to buy or the minimum price at which to sell a security. This type of open order waits in the market until conditions are met.
Stop Order
A Stop Order becomes a market order once the stop price is reached. It’s initially an open order until the specified trigger price activates it.
Examples of Open Orders
- Example 1: A trader places a limit order to buy 100 shares of XYZ Corporation at $50 per share. This order remains open until the stock price hits $50 or the order is manually canceled.
- Example 2: An investor issues a GTC order to sell 200 shares of ABC Inc. at a market price. The order stays in place until it is filled or the trader cancels it.
Historical Context of Open Orders
In traditional stock exchanges, open orders were noted on trading floors or order books, indicating the increasing complexity and variety of trading strategies. Today, electronic trading platforms provide real-time updates and allow investors to manage these orders seamlessly, thanks to advanced algorithms and computer processing capabilities.
Applicability in Modern Trading
Open orders are crucial in modern trading for strategizing and managing investment portfolios. They allow traders to automate parts of their trading processes and ensure opportunities are not missed due to inattention.
Related Terms
- Order Book: A record of all open buy and sell orders for a specific security.
- Execution: The act of completing a buy or sell order.
- Trading Floor: The physical location where securities transactions are conducted.
FAQs
What happens if an open order is not fulfilled?
Can an open order affect stock prices?
How can I cancel an open order?
References
- Securities and Exchange Commission. (n.d.). “Understanding Order Types.” SEC.gov.
- New York Stock Exchange. (n.d.). “Types of Orders.” NYSE.com.
Summary
Open orders represent pending buy or sell instructions in the market until they are fulfilled or canceled. They are vital tools for traders to execute strategies effectively without constant manual oversight. Familiarity with different types of open orders, such as GTC orders, limit orders, market orders, and stop orders, can significantly enhance trading efficiency and effectiveness.
