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Order Supplements - the small but vital difference

Process of trading
Fill-or-kill, market-to-limit, iceberg – these terms often sound Double Dutch, even to experienced private investors. However, one should be familiar with these terms, as they are supplements to securities orders.

Order supplements enable investors to stipulate how a purchase or sale should be executed once the order instruction is given. Along with the low awareness level, there is also a further exacerbation that not every bank offers all types of orders. This is an incentive for us to present the various order forms in Xetra trading and to illustrate their use through examples.

There are basically two types of buy and sell orders: market orders and limit orders. Market orders are executed at the best price. If these are at the market buy orders, the papers are purchased at the lowest offering price. In the case of orders to sell at best, the securities are sold at the best available price. With a limit order, on the other hand, the investor enters an upper or lower price limit up to which the order should be executed.

An example to illustrate this: You wish to buy 100 shares in company XY AG. The price of the stock is currently at €10. If you instruct your bank to enter a market order for this transaction, you will get the 100 shares you wanted at the price at which they are currently available in the order book. This can easily be a higher price. With a limit order, you can put a ceiling on the purchase price, for instance at €10.10.

Limit orders are generally more beneficial to investors, especially in the case of papers in “narrow” markets or with high levels of volatility. It can often happen in these cases that investors are faced with excessive, erratic prices. However, if the investor’s main concern is the execution of the order, then a market order is preferable.

There are three additional types of supplements for both types of orders. Firstly, there are the limitations of validity using a so-called validity restrictions, secondly, there are requirements as to how an order should be executed in continuous trading. In addition, there are trading restrictions which assign an order to continuous trading or to one of the many daily auctions.

Sell-By date

The following order supplements apply with regard to validity : day-long validity (good-for-day), valid up to a certain date (good-for-date) or unlimited (good-till canceled). Open orders remain in the system for a maximum of 90 days.

If you wish to have your order for the 100 XY stocks executed on the same trading day, you must add the supplement that it is only good for the day. If the order is not executed, it is deleted at close of trading. If you enter a good-for-day order outside of trading hours, then the supplement applies for the next trading day. You should check whether – as is common among some online banks and brokers – a certain validity is present. If you neglect to do this, your order might not be executed, e. g. in the case of an automatic “good-for-day” order – especially if it is for a second-tier stock with low trading activity, or if your limit was very narrow.

Now, completely or not at all?

There are two limiting supplements for actual execution: fill-or-kill orders and immediate-or-cancel orders. Fill-or-kill orders are either executed completely or deleted. If complete execution is not possible, the entire order lapses. Immediate-or-cancel orders, on the other hand, must be executed completely or partially once they come onto the market. Those portions which are not executed are deleted immediately.

You assign your buy order for 100 stocks of company XY AG with a fill-or-kill supplement and a limit of € 10.10. If, for example, only 10 shares are available at € 10 and 5 shares at € 10.10, making a total of 15 shares, then the order will not be executed. If you assigned an immediate-or-cancel supplement to this order, you will then receive 10 shares at € 10 and 5 shares at €10.10 with the same supply side as above. The surplus of 85 shares will be deleted. Without a limit, you could have maybe also received 20 shares at € 10.15.

A fill-or-kill order can make sense in the case of purchases of which one fears that one will only receive a small lot of shares. One can thus avoid disproportionately high transaction costs, or if a seller wants to prevent only a few shares being sold from a round lot. However, both of these supplements do not exclude the possibility of partial order execution, as many people often assume.


One of the most important limitation forms for private investors is the stop supplement. This instrument is designed to protect against possible losses or gains which may arise. A stop order is an order to buy or sell shares once they fall or rise to a predetermined price, the so-called stop price. Once this price has been reached, the order enters the order book as a normal market order and is executed at the best price available. A differentiation is made between a stop-sell and a stop-buy order.

A stop-sell order – a stop order to sell – is set below the current price. The order only comes into effect if the security is traded at the stop price or lower. It then becomes an order to sell at best. If stop-sell orders are used to limit losses, these are termed stop-loss orders.

You have bought your 100 shares in XY stocks at € 10. The papers initially rise to € 15 and then lose ground again slightly. However, you do not want to completely lose the profits you already made, therefore, you enter a stop-sell order at € 13.50. Should this price be reached, the order is executed at the best price.

A stop-buy order – a stop order to buy – is set above the current price. The order only comes into effect if the security is traded at the stop price or above. It then becomes an at the market buy order (an order to purchase at the lowest offering price. – Ed.)

The XY share is at €8. You believe that it has great potential in the medium term, but you only want to invest in the papers when the price has moved upwards a little. You set a stop-buy order at €10.

Stop-limit orders are a combination of stop and limit orders. These orders too can be executed once a certain price is reached, but not at the best price as market orders, but with a price limit.

As in the above example, the price of the XY share is at €8. You want to invest at €10, but fear that the price could react too strongly, and thus exceed this level. You therefore set a stop-buy order at €10 and a limit at €10.20.

The advantage of stop orders or stop-limit orders is that the investor does not have to constantly track the market and the performance of the respective stock. They have one disadvantage, however: Very short-term price setbacks during an upward trend, for example, could trigger the stop. In this case, one often speaks of being “involuntarily stopped out.”

Furthermore, stops or stop-limits are no guarantee of loss limitation. This is because they can in certain circumstances not be executed at all or executed at much worse prices than the stop price as best orders.

Best price!

A further form are the market-to-limit orders: An order is executed at the best offer available in terms of price and the remaining portion of the order is entered into the order book with a limiting execution price. This allows a higher probability of execution to be combined with a certain price security by means of the limit. To complete the picture, one further order form must be mentioned at this stage: the iceberg order. Using this instrument, institutional investors can place large orders without causing prices to immediately react negatively: Only a small fraction of a large order is visible to other market participants. The placement occurs in small tranches.

von Edda Vogt, Deutsche Börse AG
© 9. Januar 2014

Trading at Frankfurt Stock Exchange