What is a Canceled Order?

Mary McMahon

A canceled order is an order to buy, sell, or trade securities that is not executed. There are a variety of reasons an order may be canceled, ranging from the way the order is structured to a change of heart on the part of the person who placed the order. Once canceled, the order is considered dead and it cannot be filled. People are not charged for canceled orders, as no transaction took place.

Man climbing a rope
Man climbing a rope

In the case of a situation where an investor decides to cancel an order after placing it, it is usually necessary to act very fast. Once an agent or broker receives an order, every effort is made to fill it as quickly as possible, and trading takes place at a very rapid rate, making it highly likely that the order will already be executed by the time an investor decides to cancel it. Investors trading for themselves can experience the same problem if they have a change of heart while using an electronic trading system or trading on the floor.

Some forms of securities orders are structured in a way that will cancel the order if the terms are not met. For example, an all or none order indicates that if everything in an order cannot be filled, the order should be canceled. Likewise with the full or kill order, or with limit orders, where people want to place limits on securities they buy and sell to avoid taking losses. In these cases, if the market cannot support the order, it will expire and become a canceled order.

If an investor decides to revive a canceled order, a new order must be generated. The order can be identical to the previous canceled order, but it will be entered into the system separately and will be treated like a new order. This is designed to prevent confusion or situations where canceled orders are fraudulently used to execute trades.

When orders are originated, careful records are created to document the circumstances and provide information about the situation when the order was made, with the goal of creating clear documentation to use in the event of a dispute. An investor who files a limit order, for example, could charge an agent or broker with failing to respect the limit on the order, and the documentation can be used to prove or refute the charge. Records are also made when orders are filled to record the circumstances of the sale. In the event of a canceled order, the circumstances of the cancellation are noted.

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