A Discretionary order is a limit order submitted with a hidden, specified 'discretionary' amount off the limit price which may be used to increase the price range over which the limit order is eligible to execute. The market sees only the limit price.
For information about special handling for discretionary orders for US options and Penny Pilot Program US options, please see the Discretionary Order Handling page.
The Reference Table to the upper right provides a general summary of the order type characteristics. The checked features are applicable in some combination, but do not necessarily work in conjunction with all other checked features. For example, if Options and Stocks, US and Non-US, and Smart and Directed are all checked, it does not follow that all US and Non-US Smart and direct-routed stocks support the order type. It may be the case that only Smart-routed US Stocks, direct-routed Non-US stocks and Smart-routed US Options are supported.
Markets or specific stock prices often move quickly resulting in wider-than-usual spreads. In some cases quotes on some stocks are higher and therefore accommodate a wide spread. In an effort to increase the chances of execution in a stock where a spread exists, clients may use a discretionary order type to add to a limit bid price or subtract from a limit ask price without exposing the price improvement to the market. In this example, the user wishes to purchase 1,000 shares in ticker TSLA at 3-cents more than the National Best Bid (NBB) displayed in the market quote. However, the user's bid size is only displayed at the NBB although the discretionary amount increases the buyer's chance of the trade executing. In addition the buyer wishes to limit the price he is willing to pay to no higher than $218.79.
Enter the ticker symbol in the Order Entry field and click on the Buy button. This causes the background to turn blue. Sell orders create a red background. Enter the desired purchase value in the Quantity field and select LMT for the Order Type. Change the TIF if desired. In this example we are using a Day order. Clicking the Advanced button displays more parameters for the order. Click on the Discretionary Amount field, which allows the user to enter the desired amount in dollars and pennies over and above the Bid price we are willing to pay. With the NBB of $218.76 and a 3-cent Discretionary amount added to this order, the order might execute in the event the market price of TSLA falls to $218.79. Note that if the NBB rose to $218.77 the order would not fill should the market price decline to $218.80 on account of the limit price of $218.79 in place. With these values entered on the screen, you are ready to click the Submit button to transmit your order.
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 increase the price range over which the order is eligible to execute.Note that this amount is hidden from the market, which sees only the limit price of 64.10.
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.
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.