What is a Not-Held Order?
A not-held order gives a broker the discretion of time and price to seek the best deal available. Unlike a held order, a not-held order doesn’t hold the broker responsible for any potential losses or missed opportunities due to their effort.
Key Insights
- Placing a not-held order can help investors achieve a better price than immediate transactions.
- It gives brokers the flexibility to strive for the optimal fill for clients.
- This type of order can be structured as a market or limit order.
- Brokers are not held accountable for any financial shortfalls if they miss a trading opportunity while attempting to get a better price.
Grasping the Concept of Not-Held Orders
When an investor places a not-held order, they trust the broker’s ability to secure a superior market price compared to what could be obtained by directly engaging with the market. Brokers using their discretionary power aren’t liable for any downsides due to missed trading opportunities.
Known as discretionary or “with discretion” orders, these trades relieve brokers from liability for non-execution at a given limit price. For example, a broker could receive a discretion order to purchase 1,000 shares of ABC Ltd at an upper limit of $16. Suppose the market behaves unpredictably, and the broker misses buying below $16. Even if the market later soars past and they couldn’t execute at sub $16, the broker remains unaccountable due to the discretionary nature of the not-held order.
This order type is frequently applied in international equities trading.
Most investor orders are held orders, necessitating prompt execution at current market rates.
When to Employ Not-Held Orders
Not-held orders are seldom used in liquid markets since the active trading environment allows easy entry and exit from positions. However, they might offer peace of mind in the following situations:
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Illiquid Stocks: A not-held order enables brokers to try securing better prices, avoiding the pressure to immediately pay high bid-ask spreads. For instance, in stock XYZ with a $0.20 bid and $0.30 offer, the broker could initiate the trade at $0.21, adjusting prices progressively to evade a substantial premium.
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High Volatility Periods: Some investors prefer not-held orders during volatile periods like post-earning announcements, broker downgrades, or after macroeconomic releases, such as a U.S. jobs report. Brokers use their judgment influenced by previous similar events for timely and well-priced execution.
Categories of Not-Held Orders
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Market Not-Held Order: A market order with execution discretion until the trading day ends. For instance, a broker might receive an order to purchase 1,000 shares of Apple (AAPL), with instructions to secure the best price before market close.
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Limit Not-Held Order: Suiting trading where a specific limit is predetermined yet the broker maintains discretion over execution timing and pricing, even around the limit point. For example, to buy 1,000 AAPL shares with a limit at $200, though theoretically preferable at $200, the broker might not execute should that seem overpriced.
Advantages of Not-Held Orders
Brokers’ in-depth visibility into market behaviors and transaction patterns empower them to execute orders optimally. For instance, observing recurrent buying surges might prompt immediate trading on a not-held order to capitalize on anticipated price hikes.
Disadvantages of Not-Held Orders
Investors entrusting brokers with not-held orders hand over full faith in their trading judgment relative to optimal price execution. Disputing the final trade execution is non-negotiable, providing the broker’s compliance with regulatory standards. For example, an investor doubting a broker’s pre-FOMC decision timing on a not-held order is void of any rebooking grounds.
Related Terms: market order, limit order, broker, execution, equity, volatility.
References
- Nasdaq. “Not Held Order (NH Order)”.
