Definition
An Open Order in finance refers to a buy or sell order for a security that remains in effect until the order is either executed, cancelled by the client, or expires. This allows the trader to buy or sell a security at a specified price for an indefinite amount of time. It’s commonly used in stock market trading.
Key Takeaways
- An Open Order refers to a buy or sell order in the stock market that is yet to be filled or executed. This order remains active until it is either completed, canceled, or explicitly expired.
- Open Orders allow an investor to buy or sell a security at a specified price that has not yet been reached in the market. These are often used as a strategy in managing market fluctuations and mitigating risks.
- Types of Open Orders include stop orders, limit orders, and all-or-none orders. The investor can decide the conditions under which the trade will occur, providing a good deal of flexibility and precision in their investing approach.
Importance
The finance term “open order” holds significant importance as it pertains to the flexibility and control a trader exercises over the buying or selling of securities.
An open order, which is an instruction to buy or sell a security that remains valid until it is either executed or cancelled by the trader, enables continuous engagement in the market without the constant need for oversight.
It also helps in setting a limit on losses or locking in profits by automatically triggering a buy or sell when prices reach pre-set levels.
This tool, thus, enhances strategic trading, risk management and efficiency in the financial trading environment, making it pivotal for investors and traders.
Explanation
Open Order, in finance, is a valuable tool for investors as it offers them a certain level of flexibility. This flexibility stems from the fact that an open order, which is an instruction to buy or sell a security that remains in effect until either it is executed or the investor cancels it, helps carve out a specific path for executing trade strategies.
It enables investors to control their exposure in the constantly changing financial markets by defining conditions necessary for a trade. Whether the prices are rising or falling, investors can use open orders to plan ahead and automate their entry or exit points, effectively reducing their need to constantly monitor the market conditions.
More specifically, open orders such as Stop Orders and Limit Orders are used to shield investors from potential losses or to lock in on potential profits. For instance, a stop order could be placed to sell a security once it drops to a certain price, thereby limiting the investor’s loss.
On the other hand, a limit order could be set to sell a security once it reaches a specific high point, ensuring the investor capitalizes on the profit. Moreover, open orders also help in maintaining a disciplined approach to investing by eliminating emotional decisions while trading, making it an essential tool in portfolio management strategies.
Examples of Open Order
Stock Market Trades: A common example of an open order is in stock market trading. An investor may place an order to purchase or sell a specific number of shares of a company at a particular price. The order will remain open until it is either executed at the specified price or the investor cancels the order.
Foreign Exchange Market: In foreign exchange trading, a trader might place an open order to buy or sell a particular currency pair if it reaches a certain rate. The order will remain open until the rate is achieved, and the trade is executed, or the trader cancines the order.
Real Estate Market: If a buyer places an order to purchase a property once it reaches a specific price, that is called an open order. The order is fulfilled when a seller agrees to sell at the listed price or when the buyer decides to pull out their order.
Frequently Asked Questions about Open Order
1. What is an Open Order?
An open order is a buy or sell order in the stock market that remains in effect until it is either executed or canceled. Open orders may also be referred to as outstanding orders or standing orders.
2. How Long Does an Open Order Stay Active?
An Open order remains active in the market until it is either filled, cancelled, or until it expires. This duration depends on the specific instructions given when placing the order.
3. Does An Open Order Expire?
Yes, depending on the specifics of the order placed, an open order may expire. Some open orders carry an ‘end of day’ expire instruction, meaning if the order isn’t filled by the end of the trading day, it will be cancelled. Other orders, often known as ‘Good Till Cancelled’ (GTC) orders, will remain open until they are either filled, or actively cancelled.
4. What’s the Difference Between an Open Order and a Closed Order?
A closed order is an order that has been completed or cancelled. Unlike an open order, a closed order has been entirely dealt with and there are no actions pending.
5. Can I Cancel an Open Order?
Yes, you can cancel an open order at any time before it is executed. However, if the order has been filled, either partially or in full, you cannot cancel it.
Related Entrepreneurship Terms
- Limit Order
- Stop Order
- Day Order
- Good till Canceled (GTC)
- Fill or Kill (FOK)
Sources for More Information
- Investopedia : Provides a wealth of knowledge on a range of financial concepts including ‘Open Order’.
- Fidelity : A renowned financial services corporation that offers detailed insights into financial terms and concepts.
- Nasdaq : Home to numerous resources and articles about various financial terms including ‘Open Order’.
- Charles Schwab : A large bank and brokerage firm that provides content explaining a myriad of financial concepts.
