Conditional Orders: "What Is It?"

A traditional Market Order is an order to buy or sell a security at the next available price. However, some traders prefer to attach specific conditions that make the order a Conditional Order. Let's look at the three types of Conditional Orders that you can place at Fidelity.

- A Contingent Order

- A One Triggers the Other Order

- And, a One Cancels the Other Order

Contingent Orders set a criteria upon which the execution of an equity or Single-Leg Option order is contingent. The criteria can be set for a number of trigger values on a stock or index.

The trigger values upon which you may base the execution of Contingent Orders include:

- Price of the last trade

- Bid price of a stock

- Ask price of a stock

- Trading volume

- Percentage change up

- Percentage change down

- 52-week high

- or 52-week low

The execution of an order with any of these contingent criteria can be triggered if the equity or index is:

- Greater than the trigger

- Greater than or equal to the trigger

- Less than the trigger

- Less than or equal to the trigger

You can set the "Time in Force" for your contingent criteria as either a Day Order or Good 'til Canceled. Once your criteria is met, your order can be placed as any of the following types:

- Market

- Limit

- Stop Loss

- Stop Limit

- And all of the Trailing Stop Order types

Simply put, a Contingent Order gives you the choice to use several different criteria to trigger your Order.

Now, let's Talk about our second conditional order: One Triggers the Other, or OTO. An OTO order places two orders at the same time. You enter a primary order that may be "live" in the marketplace, and a secondary order that's held as a separate order that is released to the market only if the primary order executes in full.

The two orders can be:

- Both stocks

- Both single-leg options

- Or one stock and one single-leg option

With an OTO order you don't have to wait until your buy order executes to place a sell order.

In this example, a stock is trading at $47 per share. You could enter your primary order as a Buy Limit Order at $45, and your secondary order as a Sell Stop Loss Order for $40.

If the ask price moves down to your Buy Limit price of $45 and your primary order is executed, your secondary order will immediately be sent to the Market. This may help to protect you against a continued downward turn on your stock.

Keep in mind Market Orders are only allowed on the secondary leg of an OTO order. In addition, both primary and secondary orders must have the same Time in Force.

It is also important to remember, that if your primary order is canceled, your secondary order is canceled automatically. However, you can cancel the secondary order without affecting the primary order.

And you cannot "cancel and replace" an order if the primary order is partially filled. It must remain open or be canceled.

OTO orders can help you save time by efficiently structuring your trading strategy.

Now let's look at our last type of Conditional Order, a One Cancels the Other or OCO order. Like OTO's, OCO Orders allow you to place two orders at the same time, and both may be "live" in the market simultaneously. And if either order executes, the other order is automatically triggered to be canceled.

Both OCO orders can be:

- Stocks

- Single-leg options

- Or One stock and one single-leg option

You can use an OCO order when you own a particular stock and want to place a Sell Limit order above and a Sell Stop Loss Order below the current market price. So you can put two sell orders on the same total number of shares you own.

Let's look at an example.

If you own 100 shares of company XYZ and the current market price is $50 per share, you can now place an order to sell 100 shares of XYZ at a Limit price of $60 and at the same time place a Stop Loss Order at $45 on the same 100 shares of XYZ.

Now if the Stock rises to $60, and your Limit Order executes, then your Stop Loss Order is automatically triggered to be canceled. Conversely, if XYZ were to drop to $45 and your Stop Loss Order was executed, then your Limit Order would be automatically triggered to be cancelled.

Market Orders are not available, because they would execute at the next available price making the OCO order useless.

Both orders of an OCO are handled individually, so cancellation of one does not cancel the other.

With one order, an OCO can help you put into practice your Profit and Loss strategy.

Remember, when placing any type of conditional order, there are risks involved.

To learn more about all of the restrictions and risks of each order type click on "Advanced Orders" under the Read More section.

To learn when you might use conditional orders Click on the "Why & When" tab in this section.

To Learn how to use Conditional Orders, click on the "How To" tab in this section.