What is a Kill Order?

Mary McMahon

In financial markets, a kill order is to cancel an order which has been placed, but not yet filled. This term is often seen in the form of the fill or kill order, in which a broker is directed to either fill an order in its entirety, or kill it. Kill orders can be issued for a number of different reasons and may come from individuals or institutions using the services of a broker to make deals.

Businessman with a briefcase
Businessman with a briefcase

Orders in general are directives from customers to their brokers. The broker or an agent is located in an actual stock exchange buying and selling stocks, bonds, futures, and other securities, depending on the type of exchange. Customers direct the activities of the broker through the use of orders, which can range from very simple market orders in which a broker is asked to buy or sell at the current market price to more complex orders which include contingencies which are designed to protect the customer from taking a loss.

When used in the case of a fill or kill order, a kill order is usually part of a very large order. The customer directs the broker to execute a set number of trades or to not do any if the order cannot be filled. Sometimes orders can't be filled because a broker cannot find enough buyers or sellers, and sometimes it is believed that the order could disrupt the market, so the broker kills it in order to avoid destabilizing prices.

The timing of such orders can be very important. Once a trade has been executed, it cannot be taken back, even if the broker has made a mistake. For this reason, brokers are very careful about documenting the orders they receive and charting their activities on the trading floor so that if there are disputes later, the broker can show that she or he did not to anything abnormal or illegal. If a kill order is issued too late, the broker will not be able to reverse the deal.

People who work with brokers can be involved at varying levels. Some people prefer to take a more hands off approach, allowing their brokers to make decisions based on the market and their experience, in which case the broker is also acting as a financial adviser. Others like to be more involved. Brokers do not accept liability for bad trading decisions or for market fluctuations which cause a trade to go bad.

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