What is a Conditional Order?

A conditional order is a type of investment order that requires certain events or actions to take place before the order either executed or canceled. There are several different types of conditional orders that may be employed, based on the outcome desired by the investor. Limit orders, stop orders, stop-loss orders, and time-of-day orders are all examples of a conditional order.

With a conditional order, the investor provides specific instructions to the broker about when and how to execute the order. For example, an investor may tailor the order so that the broker buys shares of a specific stock only when the unit price reaches a certain level. If the stock does not reach that level, the order remains active but dormant until the investor chooses to instruct the broker to kill the request.

In like manner, a conditional order may be structured to authorize a broker to buy or sell shares if they hit a certain price within a specific period of time. This would mean that if an investor wanted to sell shares of a given security if the price fell below a certain level by a specific time of the current trading day, the order to the broker would include that data. Should that time limit pass without the value of the shares falling below that identified unit price, no sale takes place and the order is considered fulfilled.

The structure of a conditional order can cover just about any type of event that can occur in the marketplace. Some orders of this type include directions for brokers to buy at certain prices, hold for a given period of time, and sell when the value of the securities falls below a certain price. At other times, the approach may require that action be taken within a specified period of time, assuming the security price moves in one direction or the other during that time frame. The combination of buying, selling, and holding instructions is typically only limited by any regulations imposed by national agencies or by the rules and regulations set by the exchange where the trading takes place.

One of the major benefits of a conditional order is that it allows investors to tailor instructions to brokers to allow for different events that may occur in the marketplace. With this strategy, the investor’s interests are protected no matter what happens with the security in question, while allowing the investor to focus attention on matters other than what is happening in the market. As a bonus, brokers are constantly monitoring market movements, making it possible to implement that conditional order as soon as the right conditions appear, a factor that can mean higher returns for the investor.