Definition
The term fractional discretion order refers to broker instructions that allow modification of a buy or sell price within a fraction of a point. Traders will place fractional discretion orders to guarantee execution.
Explanation
If a trader would like to guarantee execution of an order, and has sufficient trust in their broker's judgement, they have the option of placing a fractional discretion order. This type of trade gives the broker discretion to modify a buy or sell order by a fraction of a point. In terms of stocks, a fraction of a point would be less than $1.00.
As is the case with Not-Held orders, by placing their faith in the ability of a broker, the trader is also agreeing to hold them harmless if they need to use their discretion to execute the order.
Example
A trader would like to buy 1,000 shares of Company XYZ's stock, which has a current market price of $25.00 per share. However, the company's stock price has been relatively volatile. The trader trusts the judgement of their broker, so a fractional discretion order is placed to buy 1,000 shares of stock at $25.00 with $0.25 discretion. This allows the broker to execute the buy order at a high of $25.25 or a low of $24.75.
Related Terms
The term Do Not Reduce refers to broker instructions to not lower the price of an order by the amount of an ordinary cash dividend on the ex-dividend date. Do Not Reduce orders typically apply when the price on an order is under market, and accompanied by Good-Til-Canceled instructions.
Moneyzine EditorJanuary 16th, 2024- The term Not-Held refers to broker instructions that permit discretion in order to obtain the best possible price on a security. Not-Held orders are typically associated with market or limit orders.Moneyzine EditorSeptember 20th, 2023
- The term order book is used to describe a listing of buyers and sellers interested in exchanging certain securities. Oftentimes an electronic matching engine is used to determine which transactions can be successfully executed.Moneyzine EditorSeptember 20th, 2023
- The term Small-Order Execution System refers to a technology that automatically executes trades on the NASDAQ securities market. The Small-Order Execution System was implemented after the stock market crash of 1987.Moneyzine EditorSeptember 21st, 2023
- The term order imbalance refers to a situation where there are surplus buy or sell orders for an equity security. Order imbalances can occur when a company makes an announcement that will materially affect the price of their stock.Moneyzine EditorSeptember 20th, 2023
- The term switch order refers to broker instructions to sell one security and buy another if a specified price differential exists. A switch order allows a trader to use the proceeds from a sale to fund the purchase of securities.Moneyzine EditorSeptember 21st, 2023
- The term on-floor refers to an order that is placed by a member of an exchange to trade securities in their account. On-floor orders typically refer to the trading of equities.Moneyzine EditorSeptember 20th, 2023
The term held order refers to broker instructions to quickly execute a transaction on behalf of a trader. Held orders are market orders, which means the investor is willing to pay the bid price when buying securities or received the take price when selling them.Moneyzine EditorJanuary 19th, 2024
