What’s Order Held?
A held order is a market order that needs rapid execution for fulfillment. This differs from a not-held order, which gives brokers time and pricing flexibility to serve customers better.
Knowing Held Order
We usually execute trades at the best offer or bid for purchase or sell orders. Market orders are standard examples of held orders. Time is short when filling a held order, so dealers have minimal price control. For a quick transaction, they must match the highest bid or lowest offer.1
If the bid-ask spread for Apple Inc. (AAPL) is $156.90 or $157.00, a trader may place a buy order at the offer price of $157.00 to execute a held order for 100 shares under normal market circumstances.
Investors who want to change their stock exposure quickly use held orders.
Sometimes, a held order is unwise. As an example, consider dealing with illiquid equities. Consider a small-cap stock with a $1.50/$2.25 bid-ask spread. Traders that employ held orders must pay the 33.3% spread ($0.75 / $2.25) for timely execution. Using judgment, the trader may acquire a higher price by sitting at the top of the bid and incrementally raising the order price to attract a seller. For traders who are playing a breakout or closing a position that was a fat finger error, the 33.3% spread may be acceptable.
Implied immediate-or-cancel (IOC) conditions apply to held orders.
Uses
Most investors seek the best price; however, held orders are helpful in three situations:
- Traders can utilize a held order to enter a stock market on a breakout without worrying about slippage expenses. Slippage happens when a market maker manipulates the spread in their favor after receiving an order. In a fast-moving stock, traders may pay slippage for an immediate fill.
- To avoid downside risk, traders might use a hold order to terminate an erroneous position promptly. If an investor buys the wrong stock, they may put it on hold to swiftly reverse the position before buying the proper share.
- To maintain a successful hedge, traders should complete hedged orders as quickly as feasible after establishing the original position to avoid price changes. Holding orders helps with this.
Conclusion
- With a market order, a broker executes and fills a held order immediately.
- A held order ensures that the consumer will complete their whole purchase, whether a buy or a sell, without delay.
- However, a not-held order allows the broker to negotiate a better price.
