Open Order

Updated on April 4, 2024
Article bySusmita Pathak
Edited bySusmita Pathak
Reviewed byDheeraj Vaidya, CFA, FRM

Open Order Meaning

Open order refers to an order placed to buy or sell securities but is not filled or canceled until it matches specific criteria. When an asset is available for trade, the deal initiator has the option of keeping it open until all conditions are met, such as price and time.

Open Order

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Also known as backlog orders, these are extremely conditional. Open orders may take a long time to complete or may go unfilled and hence are ideal for deals that take a long time to execute. These are different from market orders with fewer restrictions and are executed immediately.

Key Takeaways

  • Open order in stock market is a purchase or sale order that is not filled or canceled until it meets certain criteria. It includes limit, buy-stop, and sell-stop orders.
  • It could take a long time to finish or go unfilled and differs from market orders, which have lesser restrictions and are promptly executed.
  • If backlog orders go unexecuted for a long time, they will expire and immediately deactivate. The transaction occurs once these orders are fulfilled.
  • Investors can keep track of their backlog orders and execute them as needed by maintaining a close eye on the securities market.

Open Order Explained

An open order assures that none of the orders are left unfulfilled. An investor imposes conditions on a transaction, such as pricing and time. The order is termed “open” if one such condition is price minimum and the stock does not reach the minimum amount demanded by the investor. Therefore, deals remain open until a suitable investor is found. The transaction is complete after the order is filled.

In other words, these orders are initiated due to delayed execution of securities purchases and sales. Investors can track their open order status by keeping a tab on the securities market and then executing accordingly.

Market orders with no restrictions or conditions either undergo immediate execution or are canceled if not executed. But in backlog orders, investors are free to decide on the pricing and have the liberty to choose the period within which they want the purchase and sale orders to be executed before they expire. Furthermore, these orders remain open for a long time and are subject to price fluctuation. The price movement occurs in response to events that influence the stock marketStock MarketStock Market works on the basic principle of matching supply and demand through an auction process where investors are willing to pay a certain amount for an asset, and they are willing to sell off something they have at a specific price.read more. As a result, traders using leverages can incur losses.

Limit, buy stop, and sell stop orders are examples of open orders. When backlog orders go unfilled for an extended period, they expire and are deactivated automatically. However, investors can cancel these orders before they are fulfilled.

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Example

Let us consider an open order example to understand the concept better:

Wendy wants to sell $10,000 worth of stocks for $500 a share. In this case, the condition becomes a stumbling block for purchasers, delaying the acquisitionAcquisitionAcquisition refers to the strategic move of one company buying another company by acquiring major stakes of the firm. Usually, companies acquire an existing business to share its customer base, operations and market presence. It is one of the popular ways of business expansion.read more. Nevertheless, she is still committed to the condition and decides to leave the transaction open for the following two months to make a large profit.

Wendy was able to find a buyer for the stocks a day before the expiration date, despite the high-profit anticipation per share. However, she had to make a pricing concession due to the negative price movement, obtaining $300 per share instead of $500. Finally, she sells shares and completes the transaction.

Pros And Cons

An open order is useful to traders while limiting investors in various ways. The following is a list of the benefits and drawbacks of backlog orders:

Pros

  • Keeps the purchase and sale deal active for a longer time
  • Guarantees execution of the deal no matter when
  • Gives the investor the liberty to determine the price as well as the period until which the order would remain active
  • Works based on the conditions investors want to be fulfilled
  • As soon as the order execution takes place, the transaction occurs.

Cons

  • As the order remains open for a long time, it experiences extreme price fluctuations.
  • The buyer’s price for the security might differ from what the seller expected.
  • If the investor’s specified period is over and the deal remains unexecuted, it will automatically be deactivated and expire.

Frequently Asked Questions (FAQs)

What is an open order?

An order to buy or sell shares is considered “open” until the investor meets specific conditions, such as price and time. As a result, transactions are open until a suitable investor is located. Then, when the order is filled, the transaction is complete. In other words, these orders are placed due to delayed securities buy and sale execution.

What are the benefits of open orders?

• Keeps the buy and sale deal active for a longer period
• Ensures contract execution at any time
• Allows the investor to choose the price and period for which the order will stay active
• Works depending on the requirements that the investor wants to be met
• The transaction occurs as soon as the order is executed.

Discuss the limitations of the open orders?

• Open orders are prone to price fluctuation as they remain open for a long time. Hence, the cost of security may differ from what the individual anticipated.
• Investors have complete control over pricing and the period they want their purchase and sale orders to be fulfilled before they expire. If the investor’s stated period has expired and the deal has not been executed, it will automatically cancel and expire.

This article has been a guide to Open Order and its Meaning. Here we explain open order status in the stock market, along with an example and its pros and cons. You may learn more about Investment Banking from the following articles –

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