Open orders are any orders issued by investors to brokers or dealers that have not yet been executed or canceled. In general, as long as an order is open, it is possible for the investor to instruct the broker to disregard the request and stop the order from being placed. In some cases, an open order is structured so that the broker will only execute the transaction when and if certain events occur in the marketplace, or until the investor instructs the broker to kill the order in favor of another investment approach.
One specialized example of the open order is known as the market open order, or the market on open order. With this type of order, the investor instructs the broker to execute the order when the market opens at the beginning of a new trading day. An order of this type normally does not place any particular conditions on the execution of the transaction, other than the time of day it is to be processed. This is different from other types of orders where the investor may ask the broker to not execute the transaction unless the market performs in a specific manner, or the price of a given security reaches or exceeds a certain amount.
Technically, any type of order for securities is considered an open order for a short period. The window of time that occurs between the issuance of the order by the investor and when the broker actually places the order on the exchange may be no more than a few minutes in some cases. For the most part, investment professionals do not tend to think of this type of situation as being an open order, although the order does remain open for the briefest of times. Instead, the term is reserved for transactions where there certain factors must come into play before the order is executed.
The use of open orders can be extremely beneficial for investors. Assuming that the investor accurately projects both general market movements and the movement of a particular security, it is possible to create an order that authorizes the broker to make a purchase just before the value of the security begins an upward climb. At the same time, an investor who has a good idea of when the value of the security will level off and begin to drop can also use this open approach to trading and instruct his or her broker to sell the shares at some point before the unit price begins to fall. From this perspective, the use of the open order makes it much easier for investors to increase their chances of earning a significant return, while also minimizing the potential for incurring a loss.
