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What is an Open Order?
Let me explain what an open order is: it's an unfilled or working order that gets executed only when a specific, unmet requirement is satisfied, before you cancel it or it expires. You have the flexibility to place an order to buy or sell a security, and it stays in effect until your specified condition is met.
Since these orders are often conditional, they can face delayed executions because they're not market orders. At times, a lack of market liquidity for a particular security can also keep an order open.
Key Takeaways
- Open orders are those unfilled and working orders still in the market waiting to be executed.
- Orders may remain open because certain conditions such as limit price have not yet been met.
- Market orders, on the other hand, do not have such restrictions and are typically filled fairly instantaneously.
- Open orders may be cancelled before they are filled in whole or in part.
Understanding Open Orders
Open orders, which you might hear called backlog orders, can come from various order types. Market orders, without restrictions, usually get filled right away or canceled. There are rare cases where market orders stay open until the end of the day, when the brokerage cancels them.
Typically, open orders are limit orders to buy or sell, buy stop orders, or sell stop orders. These give you some latitude, especially in price, when entering a trade. You're willing to wait for the price you set before the order executes. You can also pick the time frame for the order to stay active. If it doesn't fill in that time, it deactivates and expires.
You often have a good-til-canceled (GTC) option for open orders. You can cancel the order anytime after placing it. Most brokerages have rules that if open orders stay active for several months without filling, they automatically expire. These orders are also used to measure market depth.
Open Order Risks
Open orders carry risks if they stay open for a long time. Once you place the order, you're committed to the quoted price. The main risk is that prices could move against you quickly due to a new event. If your order is open for days, you might get caught off guard by these movements if you're not watching the market constantly. This is especially risky for traders using leverage, which is why day traders close all trades at day's end.
Beyond orders that remain open, you need to watch open orders to close. You might have a take-profit order, but if the stock turns more bullish, remember to update it to avoid selling too soon. The same applies to stop-loss orders that may need adjustments for market conditions.
To avoid these risks, review all open orders daily, or use day orders instead of GTC orders to close everything at day's end. This keeps you aware of your positions and lets you adjust or start new orders the next trading day.
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