What Is a Not-Held Order?
Let me explain what a not-held order is. It's an instruction you give to your broker that allows them time and price discretion to find the best available price for your trade. The broker isn't held responsible for any losses or missed chances that come from their efforts to do this. In contrast, a held order demands immediate execution without any delay.
You'll typically see not-held orders as either market or limit orders.
Key Takeaways
As an investor, you might use a not-held order to get a better price than what an immediate trade would offer. This setup gives your broker the leeway to target the optimal fill for you. Remember, these can be market or limit orders, and they protect the broker from liability if waiting for a better price means missing out.
Understanding the Not-Held Order
When you place a not-held order, you're essentially trusting your broker to secure a better market price than you could by jumping in directly. They get discretion over price and timing, but they won't be blamed for any losses from a missed opportunity.
This is also called a discretionary or 'with discretion' order. The broker isn't liable for not executing above or below a limit price. For instance, if you order to buy 1,000 shares of ABC with a $16 upper limit, and the broker holds off because they think the market will drop but it rallies instead, you have no grounds to complain since it's not-held.
These orders are common in international equities trading. Most orders you place are held orders, meaning they execute right away at the current price.
When to Use Not-Held Orders
You won't often need not-held orders in liquid markets where high activity lets you enter and exit positions easily. But in illiquid or erratic markets, they can provide peace of mind.
For illiquid stocks, a not-held order lets your broker aim for a better price instead of paying a wide bid-ask spread on an immediate order. Say the best bid for XYZ is $0.20 and the offer is $0.30; the broker might start bidding at $0.21 and gradually increase to avoid the higher offer.
During high volatility, like after earnings reports, broker downgrades, or big economic news such as the U.S. jobs report, you might choose a not-held order. Brokers draw on past events to judge the best execution time and price.
Types of Not-Held Orders
There are two main types you should know. A market not-held order is a market order that lasts until the trading day ends. You could tell your broker to buy 1,000 shares of Apple (AAPL) at the best price before close.
A limit not-held order includes an upper or lower limit, but the broker has discretion even if the market hits that price. For example, to buy 1,000 AAPL with a $200 upper limit, you'd prefer not to pay more, but the broker might skip filling at $200 if it seems too high, and they're not responsible if it doesn't execute or fills differently.
Benefits of Not-Held Orders
Brokers see order flows and patterns, giving them an edge in picking the best price and time for your order. If they spot buy-side volume spikes suggesting a price rise, they might execute your not-held order quickly to capitalize on it.
Limitations of Not-Held Orders
By using a not-held order, you're putting full trust in your broker to get the best price, and you can't dispute the execution as long as they followed regulations. For example, if you disagree with them executing before an FOMC announcement, you can't request a rebooking.
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