A Discretionary order is a limit order with a defined amount off the limit price (for example $.05) which may be used to increase the price range over which the limit order is eligible to execute.
In a fast-moving market, you want to place a limit order to buy 100 shares of XYZ, which is trading at 64.25 per share. To improve the chances of getting filled, you decide to add a discretionary amount to the Limit Price. You click the Ask Price to create a buy order and select LMT as the order type. Then you enter a Limit Price of 64.10 and enter a discretionary amount of 0.10 in the Discretionary Amt field. This is the amount added to the limit price to increases the price range over which the order is eligible to execute.
Assumptions
Action
BUY
Qty
100
Order Type
LMT
Market Price
64.25
Limit Price
64.25
Discretionary Amt
0.10
Order Type In Depth - Discretionary Buy Order
Step 2 – Order Transmitted
You've transmitted your limit order with a discretionary amount of 0.10. If the price of XYZ shares falls to within 0.10 of your limit price of 64.10, your order for 100 shares will be filled.
Assumptions
Action
BUY
Qty
100
Order Type
LMT
Market Price
64.25
Limit Price
64.10
Discretionary Amt
0.10
Order Type In Depth - Discretionary Buy Order
Step 3 – Market Price Falls, Order Filled
The market price of XYZ falls to 64.19, which is within the range specified by your discretionary amount. Your limit order for 100 shares is filled at 64.19.
Assumptions
Action
BUY
Qty
100
Order Type
LMT
Market Price
64.19
Limit Price
64.10
Discretionary Amt
0.10
Note: Any stock or option symbols displayed are for illustrative purposes only and are not intended to portray a recommendation.
