Held Order

A held order – is a type of market order, which requires an immediate execution of a transaction. It differs from a not-held order which, on the contrary, gives a broker time to suggest a better option for a trader. However, the broker doesn’t take the responsibility for finding this option and possible losses that the trader can suffer while waiting. In this regard, the held order has a meaningful advantage in immediacy of the transaction. Due to this type of order, the investor has a chance to sell or buy securities in a moment.

The held order typically goes along with an immediate-or-cancel (IOC) order, which attempts to accomplish the trade fully or partially as quickly as possible and cancel an unexecuted part of the trade. This order has a set time limit to be active and cancels the trade under specified conditions.

Pros and cons of the Held Order 

Ideally, every trader tries to sell or buy securities for the best price. The held order forces a broker to execute the trade for the best possible price within a limited time period. For this reason, the trade is typically made for the highest bid or lowest offer. There are some pitfalls that any investor should consider. If a bid-ask spread for a share is wide, then the held order might be quite unprofitable.

Let’s consider some examples for illustration purposes:

• Suppose that the bid-ask spread for Walmart Inc. shares is $132.1 / $132.4. The held order for purchasing these shares will be executed for $132.4 per share. However, if the difference between the ask and bid prices is more significant, then the held order might not be the best option.
• Let’s review some small-cap stocks, e.g., Diversified Healthcare Trust with the stock price of around $1.95 per share. If the bid-ask spread for these shares is $1.1 / $2,0, then by using the held order the trader will overpay 45% for immediacy. It might not be so noticeable at first, because the price of the shares isn’t that big, but the rate of overpayment is meaningful. In this case, the not-held order will be more suitable rather than the held order. The exception is the situation when the immediacy is worth being overpaid. For instance, when the purchase was made because of a fat finger error.

Cases of the Held Order use

We’ve already mentioned some situations when the held order might be beneficial for investors, but let’s organize this information and define three of the most important cases of the held order use:

1. Trading breakouts. When a stock price experiences a breakout that means it moves out of the resistance or support areas. These fluctuations of the price might be advantageous for traders. Therefore, they are ready to execute the trade as fast as possible despite some additional payments for urgency.
2. Sale of the securities purchased by mistake. Sometimes, traders might purchase securities by mistake, thereby wishing to sell them before their price changes significantly. The held order is of help in these situations.
3. Hedging. A hedge has to be executed immediately with the aim of gaining profit until the price of the hedging instrument hasn’t changed. The held order is frequently used for this purpose.