What is a firm order?
A firm order is one that an investor leaves open or pending with their broker. A Good Until Canceled (GTC) order is considered a firm order, as it will remain open indefinitely.
A firm order can also refer to an order initiated by a proprietary trading desk on its own account, where the order comes from a company.
In the business world, a firm order can be one that is not cancellable. In other words, the parties are expected to go ahead with the transaction regardless of extenuating circumstances.
- A firm order in the trade is one that is in force until it is explicitly canceled or some preconditions are met that invalidate it.
- A firm order can also refer to a buy or sell order placed on behalf of a financial institution for your own accounts.
- In commerce, a firm order can be a confirmed or non-cancellable order that will not fail.
Companies that place securities orders
A property brokerage order is an order to buy or sell a security for a brokerage’s internal account. Brokers can use firm orders to trade on accounts associated with securities or margin loans. They may also choose to trade a portfolio for other internal company purposes. These operations require a merchant to be fully authorized by the brokerage before executing the transaction. Shares purchased under this type of firm order are held directly by the brokerage.
Property brokerage orders are treated the same as all other orders. They must be labeled with a long, short, or short exemption. These brands are dictated by the securities regulation and the SHO Regulation. Firm orders for short sale purposes will be marked with a short or short waiver.
Firm order from an investor with a broker
A firm order from an investor can also be called a good-until-canceled (GTC) order.
Once an investor places a firm order with instructions from GTC, the broker is not required to obtain the investor’s additional consent to perform the trade. Therefore, a stockbroker will execute a firm order regardless of the amount of time that has passed.
Open orders can have different expiration dates. Many open orders will only be active for up to 30 days, after which the order expires and the investor must place a new trade to keep the order open. Lack of expiration on a GTC or firm order is what separates it from a typical expiring order.
Firm orders can help an investor get a better price, limit losses, or make a profit. When placing a firm order, investors have some customization options. They can choose a firm buy or sell limit, or a firm buy or sell stop order.
A firm buy limit order indicates the highest price at which the investor is willing to buy. A firm sell limit order indicates the lowest price at which the investor is willing to sell.
A stop order can also be used to limit losses or to enter a position. A stop-loss order is a sell order at a specified price below the current market price, or above the current price if you are short. These orders can be used for risk management. All of these orders remain open until they are executed, assuming they are firm or GTC. A stop order is used to enter a position if the desired long entry price is above the current market price, or if the desired short entry price is below the current market price.
Firm orders can be canceled or modified by the investor at any time, but the order will remain open until canceled or executed.
A firm order in business and commerce
A firm order in the business world is one that cannot be revoked, modified or canceled. In other words, a firm order is a confirmed order. A firm order confirmation is a notification that the order has been received and processed.
The key takeaway is that a firm order for a business is one that is guaranteed to be completed, posing little to no risk to the business.
Example of a firm order in stock trading
Suppose an investor is interested in buying Apple Inc. (AAPL). The stock is currently trading near $ 200. The investor really likes the company, but thinks they can get a better price by placing a limit order below $ 200. They decide to place a buy order limit at $ 170.
The investor makes the order firm, or GTC, because he doesn’t want the order to expire and then forget to issue another one. The investor uses this type of order because he is happy to be dispatched to $ 170, if the stock falls to that level, within a week, within a year or more.
The fact that the order is GTC or firm does not mean that the investor cannot log into his trading account and cancel or review the order. GTC only means that the order remains pending until the investor cancels it or until the order is completed.
If after several months, APPL is trading at a much higher price, the investor may want to reconsider the price of his limit order, or he may leave it. Alternatively, if the fundamental position of the company deteriorates, they may want to reduce the limit order or cancel it.