What is an open order?
An open order is an order that must be executed when an unfulfilled requirement has been satisfied before it is canceled by the customer or expires. The customer has the option of placing an order to buy or sell a security that remains in effect until their specified condition is met. These types of orders are subject to deferred executions because they are not market orders. Sometimes a lack of market liquidity for a particular security can also keep an order open.
Understanding open orders
Open orders, sometimes called “pending orders”, can come from many different types of orders. Market orders, which cannot have restrictions, are usually executed instantly or canceled. There are rare cases where market orders remain open until the end of the day, when the brokerage will cancel them.
Open orders are generally limited orders to buy or sell, buy stop orders or sell stop orders. These orders essentially offer investors a little leeway, especially in terms of price, to enter the trade of their choice. The investor is prepared to wait for the price he has fixed before executing the order. The investor can also choose the period during which the order will remain active for the purpose of being executed. If the order is not executed during this specified period, it will be deactivated and declared expired.
Open orders often have a good option until canceled (GTC) which can be chosen by the investor. The investor can also, at any time after placing the order, cancel it. Most brokerages stipulate that if open orders remain active (not executed) after several months, they will automatically expire. They are often used to measure the depth of the market.
Key points to remember
- An open order is an order that must be executed when an unfulfilled requirement has been satisfied before being canceled by the client or expires.
- Market orders, which cannot have restrictions, are usually executed instantly or canceled.
- Open orders essentially offer investors some leeway, particularly in terms of price, to enter the trade of their choice.
Risks related to open orders
Open orders can be risky if they stay open for a long time. After placing an order, you are hooked on the price indicated when ordering. The biggest risk is that the price can quickly move in an unfavorable direction in response to a new event. If you have had an order open for several days, you may be caught off guard by these price movements if you are not constantly monitoring the market. This is especially dangerous for traders using leverage, which is why day traders close all their trades at the end of each day.
In addition to remaining open orders, traders should also be aware of open orders to close. You might have a profit-taking order in place one day, but if the stock becomes significantly more bullish, you should remember to update the trade to avoid selling stocks early. The same goes for stop loss orders which may have to be adjusted to take account of certain market conditions.
The best way to avoid these risks is to review all orders opened daily or to ensure that you close all orders at the end of each day using daily orders rather than orders until canceled (GTC). This way you are always aware of your open positions and can make adjustments or re-initiate new orders at the start of the next trading day.