What it means
When you place an ordinary market or limit order, the broker is expected to follow your instructions exactly. With a not-held order, you hand over some of that control, and the broker uses judgement about when and how to trade.
In return you accept that the broker will not be blamed if a better price was available a few minutes earlier or later. The main reason for doing this is size.
A large order dropped into the market all at once can push the price up as you buy or down as you sell, and other traders may notice and trade ahead of you. A skilled broker can break the order into pieces, wait for liquidity (the presence of willing buyers and sellers) and work the order quietly.
Not-held orders are typically used by institutional investors such as pension funds and asset managers. They are common in equities and in foreign exchange, where a treasurer may ask a bank to buy a large amount of currency over the course of a day.
The instruction usually still states the quantity and a price limit, but leaves the detail of execution to the broker. The trade-off is trust and transparency.
The investor depends on the broker's skill and honesty, so firms normally use brokers they know well and review the results afterwards. A common check is to compare the average price achieved with a benchmark such as the average price over the trading day.
It helps to contrast this with a held order, where the broker must execute at once or lose the instruction. A held order gives certainty about timing but may cost more in price movement, while a not-held order gives flexibility at the cost of control.
Rules about best execution (the duty to get a good overall result for the client) still apply in many markets. A not-held order does not give the broker licence to act carelessly, and clients can usually still complain if the handling was unreasonable.
In practice
Real-world examples.
Example
A pension fund needs to sell 500,000 shares of a mid-sized listed company, which is several times the stock's usual daily trading. The fund gives the broker a not-held order with a minimum price. The broker sells gradually over three days so the price does not collapse.
Example
A manufacturing company must convert $3,000,000 of customer receipts from euros to dollars. The treasurer instructs the bank to execute over the day on a not-held basis. The bank trades in several smaller parts when liquidity is best, and the company avoids a sharp move caused by one large trade.
Example
An asset manager rebalancing a portfolio places not-held orders for twenty stocks. The trading desk reviews the results at the end of the week and compares them with the average prices for each day. A broker that consistently underperforms is removed from the panel.
Formula
Calculation
Execution cost (slippage) = (average execution price - price when the decision was made) x number of shares
Suppose a fund manager decides to buy 10,000 shares when the price is $50.00 and gives a not-held order. The broker works the order through the day and buys at an average price of $50.12. Execution cost = (50.12 - 50.00) x 10,000 = 0.12 x 10,000 = $1,200. If the same order had been sent to the market all at once and moved the price to an average of $50.40, the cost would have been 0.40 x 10,000 = $4,000, so the broker's discretion saved $2,800.Case study
Seen in the real world.
Northmere Capital is a fictional investment firm created for this illustration. Its portfolio manager wanted to buy a $6,000,000 position in a thinly traded company and feared that a visible order would send the price up before she finished.
She gave the order to a trusted broker on a not-held basis, with a ceiling price and a three-day window. The broker split the order into small pieces, bought when sellers appeared and stayed out of the market when prices ticked up.
The illustrative result was an average price about 0.6% below what a single large order was expected to cost, which on $6,000,000 is a saving of $36,000. Northmere's compliance team also kept a record of the instruction and the review, so it could show that the discretion had been used properly.
Watch out
Common mistakes.
- Believing a not-held order means the broker can do anything, when best execution duties and the client's limits still apply.
- Using it for small, liquid trades, where the benefit is tiny and a plain market order is simpler.
- Failing to review the results, when the investor should always compare the outcome with a benchmark.
Questions
People also ask.
What does "held" mean in this context?
A held order obliges the broker to execute at once or accept responsibility for the delay, while a not-held order leaves timing to the broker.
Who typically uses not-held orders?
Mainly institutional investors and corporate treasuries that trade large amounts, because they are most exposed to moving the market.
Does the investor give up all control?
No, most not-held orders still carry a quantity, a price limit and a time window, and the investor can cancel or change them.
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