What Is a Held Order?
Let me explain what a held order is: it's essentially a market order that you give to your broker demanding prompt execution for an immediate fill. You can contrast this with a not-held order, where the broker gets some leeway on time and price to potentially secure a better deal for you.
Key Takeaways on Held Orders
When you place a held order with your broker, it's all about getting that prompt execution and immediate fill, just like with a standard market order. The main advantage here is that you're guaranteed to execute the full size of your order—whether it's a buy or sell—without any waiting around. On the flip side, a not-held order hands over some discretion to the broker, allowing them to work the order and hunt for a better price.
Understanding Held Orders
In most trading scenarios, you expect your trade to hit the best offer for buys or the best bid for sells. Market orders are a prime example of held orders. When you're filling one of these, traders don't have much room to maneuver on price because time is of the essence. Usually, they'll need to match the highest bid or lowest offer to make the transaction happen right away.
Take Apple Inc. (AAPL) as an example: if the bid-ask spread is $156.90 / $157.00 and you send a held order to buy 100 shares, the trader would buy at the offer price of $157.00, and under normal conditions, it'd execute immediately.
You'd use held orders when you need to adjust your exposure to a stock quickly and can't afford delays. But there are situations where it's not the best move, like with illiquid stocks. Imagine a small-cap stock with a spread of $1.50 / $2.25—if you go with a held order, you're stuck paying that 33.3% spread ($0.75 / $2.25) for the quick execution. Instead, using some discretion to sit at the top of the bid and gradually increase your price might draw out a seller and get you a better deal. That said, if you're chasing a breakout or fixing a fat-finger mistake, that spread might be worth it.
A Quick Tip on Held Orders
Keep in mind that held orders come with an implicit immediate-or-cancel (IOC) condition, meaning if it doesn't fill right away, it's canceled.
When to Use Held Orders
Most of you investors are after the best price, but held orders shine in specific situations. They're ideal for trading breakouts, where you want instant entry into a stock and aren't worried about slippage—that's when a market maker might tweak the spread after your order hits. In fast markets, paying that slippage ensures you get filled right away. They're also great for closing out an error position quickly to cut losses; say you bought the wrong stock by mistake—you'd use a held order to reverse it fast before grabbing the right one. Finally, for hedging, you need that hedge in place ASAP after your initial position, so the hedging instrument's price doesn't shift and ruin the effectiveness—a held order gets that done promptly.
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