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Held Order

Definition

A Held Order is a market order that requires prompt execution for an immediate fill. It’s an instruction to buy or sell a financial security as soon as possible at the best prevailing price. Failure to immediately execute this type of order can result in a violation.

Phonetic

The phonetic of the keyword “Held Order” is: /hɛld ˈɔːrdər/

Key Takeaways

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  1. A Held Order is considered an instruction given by customers to brokers, signifying that an investor’s trade order needs to be executed immediately at the best possible price available.
  2. If for some reason the order can’t be unfilled due to lack of available shares at the best price, the remaining part of the order remains pending until the position gets closed.
  3. In the stock market, it is essential to remember that once a held order is placed, it cannot be cancelled or altered. This feature is what distinguishes held orders from not-held orders, in which the investor has the liberty to modify or cancel the instructions.

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Importance

Held Order in business/finance terminology is an order that must be executed without any delay to ensure the best possible price for a client. Its importance lies in its crucial role in trading, especially in stock brokerage transactions, as it ensures that the client’s interests are served optimally. A held order usually mandates the broker to buy or sell at the most beneficial price point swiftly, which can impact the profit and loss outcome for investors or traders. In the fast-paced environment of financial trading, timing is crucial, and so a held order can make a significant difference to the overall success of a transaction.

Explanation

The purpose of a “held order” in finance comes into light mainly in the realm of securities trading. Despite being subjected to certain constraints and rules, held orders are a valuable tool used by traders to make optimal investments and manage their risks effectively. They help facilitate streamlined transactional processes by providing clearer directionality toward executing a sale or purchase of a security. A held order emerges from a customer’s request to a broker to execute a trade at the fastest speed possible, thus it ensures maximum precision in execution, thereby leading to potentially favorable trading outcomes.With held orders, traders can apply the concept of time value, where the timing of a transaction execution becomes a crucial determinant of the overall performance of the trade. The quicker the order is implemented, the higher the chances of locking in the desired price, and thereby the probability of high returns. Moreover, held orders can help manage volatility in securities trading, as quick execution reduces exposure to market fluctuations. It’s essential to note though, while held orders are advantageous in fast-paced trading scenarios, they must be used prudently as prompt executions may also lead to hasty trading decisions, which could result in sub-optimal returns or losses.

Examples

1. Stock Exchanges: If an investor provides a broker with explicit instructions on how to execute a trade order, that is called a Held Order. For instance, an investor may instruct their broker to sell 500 shares of Apple Inc. at $150 each. Until the given price point is reached, the broker holds this order. 2. Online Trading Platforms: Investors also use held orders on online trading platforms such as E*TRADE or Robinhood. If an investor has decided they want to buy stocks of Microsoft Corp. when the price dips to $200, they would place a held order. That order would be executed when the market price matches the investor’s specified price.3. Foreign Exchange Market: In Forex trading, a trader might place a held order to buy a certain amount of GBP (British Pound) when the exchange rate with the USD (US Dollar) is 1.35. In such a scenario, the order would be held until this exchange rate is available, then the transaction is carried out as per the given instructions.

Frequently Asked Questions(FAQ)

What is a Held Order?

A Held Order is a type of market order in trading that requires prompt execution for quick action in the trading pit.

Where may a Held Order be typically used?

A Held Order is typically used in a stock exchange or commodity exchange. It gives the floor broker discretion on time, but not on price, to execute the order.

Is a Held Order limited to any specific forms of trading or markets?

No, a Held Order is not limited to any specific forms of trading or markets. It can be used in various trading avenues such as commodities, equities, or even derivatives markets.

What is the primary objective of a Held Order?

The primary objective of a Held Order is to ensure a swift execution of the trade. Traders usually use this when they want to execute the transaction as swiftly as possible.

Are there any risks associated with a Held Order?

Yes, there are risks associated with a Held Order. By opting for a Held Order, a trader loses all control over the execution price. Therefore, in volatile market conditions, there may be a significant difference in the expected and actual execution price.

Can a Held Order be cancelled?

No, once a Held Order is placed, it cannot be cancelled or modified. It must be fully executed once it hits the trading floor.

How does a Held Order differ from a Not Held Order?

Unlike Held Orders, Not Held Orders give the broker discretion over the price and time of the trade execution. A Not Held Order is more flexible and can be altered or cancelled if market conditions shift.

Is a Held Order appropriate for all types of investors?

A Held Order is best suited for investors who prioritize the quick execution of an order over the exact price point. Investors who are sensitive to price should consider other types of orders.

Related Finance Terms

  • Limit Order: This is an order to buy or sell a stock at a specific price or better.
  • Stop Order: Also known as a stop-loss order, it is designed to limit an investor’s loss on a security position.
  • Day Order: This is an order to buy or sell a security that automatically expires if not executed on the day the order is placed.
  • Good Till Cancelled (GTC) Order: This is a buy or sell order that remains active until the investor decides to cancel it or the trade is executed.
  • Market Order: This is an order to buy or sell a security at the best available price in the current market.

Sources for More Information

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