Definition
The term contingency order refers to trades that are only executed if one or more conditions are satisfied. Contingency orders can include conditions such as the price of a security or the execution of another order.
Explanation
While brokerage houses are not required to accept contingency orders, there are brokers that offer this service. These offers are typically structured as a good-til-canceled (GTC) or day order that is executed only if certain conditions are met. An investor looking to sell a security at a certain price point, and use those funds to purchase another security, can use a contingency order to execute this strategy.
Stop-loss orders are one type of contingency order, since it's not a market order until the stock reaches a certain price point. Multi-contingent orders require more than one condition to be satisfied before the order is executed. Contingency orders may involve a specific price point, a change in price, or even trading volume. For example, a market sell order might be executed if a security's price hits a 52-week high.
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