What is an Open Order?
An open order represents an unfilled, or working, directive to buy or sell a security once specific conditions are met unless it is canceled by the customer or it expires. This flexibility allows traders and investors to set orders that stay valid until their predetermined conditions are satisfied.
Since open orders are often conditional, they may experience delayed executions as opposed to market orders, which are typically executed immediately. Lack of market liquidity for a particular security can also cause an order to remain open.
Key Takeaways
- Open orders are unfulfilled directives that remain in the market until their conditions are met or they are canceled.
- Such orders may stay open because certain criteria, like a specified price limit, haven’t been achieved yet.
- Market orders generally do not have these constraints and are filled swiftly.
- Open orders can be canceled at any time before they are fully executed.
Gaining Insights on Open Orders
Open orders, sometimes referred to as ‘backlog orders,’ can stem from various order types. Market orders typically do not incur delays; they are filled immediately or canceled. In rare instances, they may stay open till the end of the trading day, at which point the brokerage typically cancels them.
Often, open orders are limit orders or stop orders, which give investors a degree of flexibility, particularly concerning price, before executing a trade. Investors can wait for their specified price before the order turns active. These orders are set with an active period; if unfilled during this time, they expire.
Open orders usually offer a ‘good ’til canceled’ (GTC) option, which investors can choose when placing an order. Investors or traders can cancel open orders at any time, but many brokerages set limits for how long such orders can remain active before they are automatically canceled. Open orders help measure market depth, offering insights into market activity.
Potential Risks of Open Orders
Open orders run risks if they remain open for extended periods. Traders are committed to the quoted price when the order was placed, posing risks if the price moves adversely due to new developments. Traders, especially those using leverage, need to be vigilant about how long orders stay open, as unanticipated price shifts could lead to losses.
It’s crucial for traders to be mindful of ‘open orders to close.’ For instance, a take-profit order might need updating if the stock shows bullish trends to avoid early selling. Similarly, adjustments might be needed for stop-loss orders to adapt to market conditions.
A proactive approach involves reviewing all open orders daily or using day orders instead of GTC orders to automatically close positions at the end of each trading day. This ensures traders are aware of their positions and can adjust or initiate new orders at the market’s start.
Related Terms: market order, limit order, stop order, leverage, day trading.
