What Is Cancel Former Order (CFO)?
Cancel Former Order (CFO) is an order from an investor to a broker to cancel a previously-placed order that has not yet been filled. CFO is used by an investor who has changed his or her mind about a securities transaction that has not yet been executed or filled and wishes to change one or more of the order parameters, such as price or amount. By canceling the previous order, a CFO ensures that no order duplication takes place if the client generates a new order for the same security.
Understanding Cancel Former Order (CFO)
A CFO can only be used to replace unfilled orders; orders where a fill has been received are binding contracts and cannot be revoked.
A CFO is often used in cases where market conditions prompt the investor to change the order parameters. For example, in a falling market, the investor may use a CFO to lower the price at which he or she wants to purchase a security. Conversely, if a stock is rising rapidly, the investor may change a limit order to a market order to ensure that an order fill is obtained. As an example, assume an investor wants to buy 100 shares of Widget Co, which is trading at $10.25, and places a limit order at $10.00. If Widget Co begins rising on news of a positive development and is now trading at $10.50, the investor may CFO his or her previous order and place a new market order, so as to buy 100 shares of Widget Co at the current market price.
An investor must exercise case when submitting CFO requests online in a fast-moving market for a stock. It takes time for an online system to process and confirm a CFO request, so if the investor wishes to make a tight price adjustment, the cancellation of the old price and placement of the new price may not take place in a timely manner for the investor.