An all or none order is quite simply an order that must be executed in its entirely, or it won’t be executed at all. Stock market investing and other forms of trading are generally well-regulated. While regulation is often a negative buzzword, in the case of investing regulations, some simple rules can go a long way in increasing confidence and protecting investors. All-or-none orders are one such type of regulation. They ensure that investors are getting what they signed up, or more accurately, bid for.
Let’s say you put in an order to buy one hundred shares of Acme Computers at $100 dollars a share. Current market prices are at $100.26 so your order isn’t executed right away. Instead, your broker sits on the order and waits for prices to drop to $100 dollars on the dot and if this point is reached, your order will be completed.
Let’s assume 90 shares of Acme Computers become available at $100 dollars, while another 10 shares are available at $100.09. Could your broker go ahead and buy those 90 shares at the $100 dollar mark, and then buy the other ten shares at the $100.09 mark? Not if you had an all or none order on the books. If you had an AON order, your broker has to purchase all of the shares at the price you specified, or else can’t execute any trades at all.
All-or-None, None-or-All, and Thinly Traded Stocks
Aon orders are useful for thinly traded stocks. Let’s say you’re a venture capital fund investor. You want to pick up 10,000 shares of the lightly traded Acme Biotech Science Industries. To make the example more clear, let’s assume you need exactly 10,000 shares in order to gain enough clout to get yourself on the board of Acme Biotech Science. For a venture capital fund this voice is obviously very important.
Problem is, Acme Biotech Sciences is currently going for $13 dollars a share and you simply believe that that is too high. You want to invest in Acme Biotech, but not at those prices. So you put in a none or all order for $11 dollars and hope that prices drop.
Prices do drop, but only 6,000 shares are available. In this case, these 6,000 shares don’t really help you. You’re less interested in shares of Acme Biotech, and more interested in gaining a board membership. This is why you put in an all or none order.
Suddenly, a major investor decides to liquidate her stake, and an additional 5,000 shares come open for $11 dollars. Your trade is executed. As a result, you get the number of shares you need to gain a board membership. Because you used an all or none trade you were able to get what you wanted.
All or none orders are particularly useful on thinly traded stocks because the number of shares for sale is often low. This means you can use an AON strategy to ensure that you are getting what you want, or else not getting anything at all. With more heavily trade stocks, AON orders are executed more often because there are simply a lot more stocks available.
What is a Limit Order?
A limit order is another type of order that you can use to make sure you are getting what you want, or nothing at all. With a limit order, you specify the quantity of assets you want, and also the price. This order is then basically logged with the broker. If market conditions allow them to execute the trade (in other words, prices drop) the trade will be executed.
So what is a limit order? It can be thought of as a set of instructions. Basically, you tell your broker that I want to buy X stock or Y Asset, but only at this specified price or better. If the price point reaches your desired thresh hold, the trade is executed.
Also, limit orders can be used to sell assets. Let’s say you’re going on vacation and won’t be able to monitor your stocks. You own shares of Apple stocks, and would like to sell them if prices reach $150 a stock, so you set a limit order. Stock prices rise and Apple reaches $151.35, so your broker executes the limit order you put in place.
So how about a market order vs limit order? A market order simply means you will sell your assets at whatever the prevailing market prices are. Your order will be executed no matter what. This can create some risks because sometimes stock prices (and other asset prices) can swing widely within a short period of time. Still, market orders are very useful for executing quick trades and for participating in fast moving markets. Limit orders are more useful when you can’t watch markets closely, and thus want to set some trading parameters.
https://www.sec.gov/answers/aonord.htm
http://www.investopedia.com/terms/m/marketorder.asp
http://www.investinganswers.com/financial-dictionary/stock-market/limit-order-1215
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