What is an 'Open Order'

An open order is an order to buy or sell a security that remains in effect until it is either canceled by the customer, until it is executed, or until it expires. Open orders commonly occur when investors place restrictions on their buy and sell transactions that lead to a delayed execution. A lack of liquidity in the market or for a particular security could also cause an order to remain open.

BREAKING DOWN 'Open Order'

Open orders can arise from many different order types. Market orders, which cannot have restrictions, are typically filled instantaneously, but if they remain open at the end of the day, the brokerage may cancel them. With limit orders, investors typically have to wait for the price that they set as their limit to be reached before the order can be executed. These orders will remain open either for the duration determined by the customer or until they are filled. If they remain open after several months, they may expire under the terms established by the brokerage through which the order is placed.

Open Order Risks

Open orders can be risky if they remain open for a long period of time. After you place an order, you are on the hook for the price that was quoted when the order was placed. The biggest risk is that the price could quickly move in an adverse direction in response to a new event. If you have an order that's open for several days, you may be caught off guard by these price movements if you're not constantly watching the market. This is particularly dangerous for traders using leverage, which is why day traders close all of their trades at the end of each day.

In addition to orders that remain open, traders must also be cognizant of open orders to close. You might have a take-profit order in place one day, but if the stock becomes materially more bullish, you must remember to update the trade to avoid prematurely selling shares. The same goes for stop-loss orders that may need to be adjusted to account for certain market conditions.

The best way to avoid these risks is to review all open orders each day, or ensure that you close all orders at the end of each day by using day orders rather than good-til-canceled (GTC) orders. This way, you are always aware of your open positions and can make any adjustments or reinitiate new orders at the beginning of the next trading day.

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