Contingency Order
What Is a Contingency Order?
A contingency order is a buy or sell order that is executed from a broker's trading platform just when specific, trader-characterized conditions have been met. These essential conditions range in scope and depth.
A simple illustration of a contingency order is a limit order to buy or sell a security at a predetermined price or better. A more complex contingency order, known as a conditional order, could indicate buying a defensive stock when the S&P 500 Index falls below a certain price.
Conditional orders can include even more complex criteria. For instance, a trader can make the purchase of an option dependent on at least two factors, for example, the price of the underlying stock and the price of the option contract itself. The number and complexity of conditions to the order is limited exclusively by the broker's platform and the trader's creative mind.
How a Contingency Order Works
From a broad perspective, any order that utilizes a specific condition to trigger its execution could be viewed as a contingency order. Under that definition, any order other than a market order would be viewed as a contingency order. Notwithstanding, most brokerage platforms allude to contingency orders as something that has a more complex, or even a conditional, execution.
The terms contingent order and conditional order are frequently utilized conversely with contingency order. In any case, in certain settings unpretentious differentiations can be made. These qualifications fluctuate starting with one broker then onto the next, however in discussion among traders they are generally minor. A contingency order can incorporate several different order types that will just execute after certain conditions have been met.
Instances of Contingency Orders
Maybe the simplest form of a contingency order is a limit order. This indicates that an order might be executed at (or better than) a predefined price. For a buy limit order, this will address a pre-decided least price, and for a sell limit order a pre-decided maximum. Real orders might be filled at a price more ideal than the predefined limit, yet never more terrible.
A stop-loss order can likewise be seen as a contingency order, since it doesn't turn into a market order until the price of the security being sold arrives at a foreordained level. A stop loss is extremely helpful when applied to options trading, as well as laying out exit points in stock situations during a bear market. Different changes to stop loss orders incorporate the trailing stop.
A all or none (AON) order is one that executes contingent on getting the full order size executed on the double. To buy 10,000 shares of Company XYZ all or none, then they would reject an execution of anything short of the full 10,000 shares.
A immediate or cancel (IOC) order is contingent after being executed immediately. In the event that an order can't be filled in that frame of mind in part inside an extremely short period of time, the order is canceled. Say a trader needs to buy 10,000 shares of Company XYZ for a limit price of $20 and indicated immediate or cancel. On the off chance that there are just 2,500 shares on offer at $20, different sellers should come in. Yet, since it is designated IOC, just the 2,500 shares might wind up trading.
A fill or kill (FOK) order is one that consolidates all or none and immediate or cancel. In the model over, the order would possibly be executed if every one of the 10,000 shares would be filled in an exceptionally short period of time.
Other contingency orders incorporate the day order, which is a limit or stop order that terminates toward the finish of the trading day. Different orders indicate buying the market price on the open (MOO) or the market on close (MOC), which can likewise be determined as a limit order rather than at the market.
There are many types of conditional orders, for example, bracketed buy or bracketed sell orders, or different sorts of various part orders that are much of the time specific to a single broker.
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Features
- In their simplest form, such orders incorporate a stop loss order or a limit order.
- The terms contingency order and conditional order are frequently utilized reciprocally.
- More complex forms of contingency orders might indicate how the order is filled or under which conditions it is filled.
- Contingency orders are those that require trader-indicated conditions to be met before the order can be executed.
