Definition
An open order, in the context of finance and investing, refers to a buy or sell order that has been placed but has not yet been filled or completed. These orders remain open until they are either fulfilled, cancelled by the customer, or expired due to the time limits set by the investor. It allows investors to control their trading activities outside of regular trading hours.
Phonetic
The phonetic transcription of the phrase “Open Order” is /ˈoʊ.pən ˈɔːrdər/.
Key Takeaways
- Open Order refers to an instruction to buy or sell a security that remains in effect until the order is either cancelled by the customer, completed by the broker, or it expires. This means an Open Order stays active in the market until the conditions specified by the trader are met.
- There are two types of Open Orders: ‘buy’ orders and ‘sell’ orders. A ‘buy’ open order is called a ‘limit order’ which allows a broker to purchase a certain number of shares at or below a specified price. On the other hand, a ‘sell’ open order allows an investor to sell assets at a price higher than the current market price which is known as a ‘stop order’.
- Open Orders can be beneficial as they give investors greater control over their trading decisions. This can provide flexibility and efficiency in managing their portfolio. However, they also come with risks, such as missing a trading opportunity if the security never reaches the specified price, or if the order partially fills before the price changes. Therefore, in utilizing Open Orders, traders must weigh the potential rewards against the risks involved.
Importance
Open Order is a significant term in business and finance as it represents an instruction to buy or sell securities that hasn’t been executed or canceled yet. This term is crucial because it allows investors to keep their orders open until they are fulfilled at a specific price, giving them flexibility in trading. It can potentially protect investors from rapid price fluctuations, allowing them to capitalize on their preferred pricing conditions. It remains valid until it is executed, expires, or is manually canceled. Thus, an open order plays a pivotal role in managing investments and optimizing returns.
Explanation
The primary purpose of an open order in finance and business is to facilitate seamless transactions in the stock market, even in the investor’s absence. It allows investors to buy or sell securities at a predefined price point, hence giving them the advantage to handle constantly fluctuating market conditions. Utilizing open orders, investors and traders can establish a strategy in advance, mitigating potential emotional responses to market conditions. Thus, it helps them create a decisive approach that can potentially contribute to more profitable trading.In addition to this, open orders also serve a significant purpose in managing risk. Since the execution of an open order is contingent upon the specific conditions set by a trader or investor, it enables them to limit losses or secure profits by triggering trades when the price hits a certain level. For example, a stop-loss order will sell a security when it drops to a particular price, thereby protecting the investor from further losses. Essentially, open orders function as automatic tools that provide investors a good degree of control over their investment strategies.
Examples
Open Order is a situation where a business order remains open or in an incomplete state due to certain reasons, such as unavailability of stock or a customer’s request for a later delivery date. Here are three real-world examples:1. Stock Trading Order: A financial advisor for a large investing firm may place an open order for a client’s stock at a particular price point. The order is open until the stock reaches that desired price, at which point the order is executed.2. Retail Business: A clothing retailer orders a new line of summer wear from a supplier. However, due to some production issues, the supplier is unable to fulfil the entire order at once. The remaining items form an open order, which will be fulfilled once the supplier resolves their production issues.3. Manufacturing Sector: A car manufacturer places an order for 500 car engines from a supplier. Due to logistic issues, the supplier can only deliver 300 engines at that time, leaving an open order for the remaining 200, which will be delivered at a later date.
Frequently Asked Questions(FAQ)
What is an Open Order in finance and business?
An open order refers to a buy or sell order in the financial markets that remains active or open until it is either filled (transactions are completed), cancelled by the trader, or in some cases, until the end of the trading day.
How long does an Open Order last?
An open order normally lasts until it is either filled, cancelled by the trader, or expires. The expiry could be at the end of the trading day for day orders, or at a set date in the future for good-till-cancelled (GTC) orders.
What is the difference between a Day Order and a Good-Till-Cancelled Order (GTC)?
A day order is a type of open order that automatically expires if not executed on the day it was placed. On the other hand, a good-till-cancelled order (GTC) remains in effect until the trader explicitly cancels it or until the trade is executed.
Can an Open Order be modified?
Yes, most open orders can be modified provided they have not been executed or filled. Changes may include the size of the order, the limit price, etc.
What is a Stop Order and a Limit Order?
These are types of open orders. A stop order is an order to buy or sell a security once a specific price is reached. This is designed to limit an investor’s loss on a security position. A limit order, on the other hand, is an order to buy or sell a security at a specified price or better.
What is a partial fill?
A partial fill occurs when only part of an open order is executed, i.e., fewer shares are bought or sold than originally ordered. Depending on the type of order used, the remaining portion might still be filled in the future.
What happens if an Open Order is not filled by the end of the trading day?
If not specified as a GTC (good-till-cancelled), the open order will typically be cancelled at the end of the day. Traders will need to place a new order for the following trading day.
Is there any risk associated with an Open Order?
Yes, the market may change drastically by the time your order is executed, causing potential financial loss. Also, there’s a possibility that the order may not be filled at all, particularly with limit orders. This risk increases in fast, volatile markets.
Related Finance Terms
- Limit Order: An instruction to trade stocks or commodities at a designated price or better.
- Market Order: An order to buy or sell a stock immediately at the best available current price.
- Execution: Completion of a buy or sell order for a security.
- Broker: An individual or firm that charges a fee for executing buy and sell orders submitted by an investor.
- Pending order: An order that is still in process and has not been completed or canceled yet.
