Feb 23: All-or-None Orders in Stock Trading

by David Jenyns on February 23, 2007

If you are an investor who relies heavily on penny stocks, the all-or-none order (AON) is extremely important. The AON order works to safeguard your purchase by providing the guarantee that you either receive every single stock that you requested or none at all. This type of order can problematic when a particular company lacks the cash to stand behind their stocks or a limit has been placed on the order. All-or-none orders are the lowest priority of your stockbroker therefore, this type of transaction is executed last, so when your broker finally attempts to execute this order, there must be enough stocks available to buy or the order is null and void. Therefore, your all-or-none order will not be filled until there is enough stock available no matter how much time elapses before purchase of an AON order is accomplished.

In order to better clarify this type of order, an example is provided. Let’s say that you put in an order to buy 2500 shares of stock from Wal-Mart, however, because Wal-Mart stocks are in such high demand, only 1000 shares are available for purchase. If you place an all-or-none order on the Wal-Mart shares, then you must wait until 2500 shares are available for purchase. Now, if it takes 10 months for 2500 shares of stock from Wal-Mart to become available, then there is a high chance that the price of each stock has increased. However, because you placed an AON order 10 months ago, your broker is currently executing the order, and the total number of stocks are presently available, so you are required to purchase all 2500 of them no matter what the price per stock may be.

Obviously the advantage to the all-or-none order is that the price of any given company’s stock could either stay the same or even decrease in price. For example, you would like to obtain 3000 shares of stock in Applebee’s, a restaurant chain; however, because Applebee’s stocks are in high demand, there are only 1000 stocks available for purchase. You really love this restaurant chain and you had your heart set on 3000 shares of Applebee’s, so you decided to place an all-or-none order on the purchase of these stocks. Currently the each share of stock is priced at $200 each, so you would only presently be investing $600,000 if the stocks were available. So, now you play the “waiting” game to see if other people who own stocks in Applebee’s are willing to sell them.

Finally, after 2 years of waiting, your stockbroker contacts you with the good news that all 3000 shares of Applebee’s stock are available. And, even better news, each stock has dropped $50 in price. That means that instead of investing $600,000 for 3000 shares of Applebee’s stock, you only have to invest $450,000! If you budget allows, that leaves you with $150,000 to invest into another stock.

Now, there are two huge disadvantages of all-or-none orders, the first one being price inflation. For example, you would like to purchase 4500 shares of stock from Southwestern Bell, a phone company. So, again, you contact your broker with this decision. You broker informs you that there are only 2500 shares of stock available from Southwestern Bell, however, that it would be wise to place an all-or-none order because these stocks seem to steadily increase in profit and lower in price per stock.

So, you follow through with this. About 9 months later, your stockbroker reports to you that all 4500 shares of stock in Southwestern Bell are available; however, the price per stock has increased 34%. Because you did not cancel this all-or-none order, you are now forced to purchase all 4500 shares of Southwestern Bell stock. The other disadvantage is that you may not receive the all-or-none ordered stocks. Let’s say that you wanted to purchase 6000 shares of stock from Friedman’s, a jewelry store, however, not all the stock is currently available. So, you place an all-or-none order. Three months later, your stockbroker goes to complete the order; however, there are still not a total of 6000 stocks available from Friedman’s. Because your stockbroker attempted to fill the order, you have lost all of the stocks that you wanted to purchase.

Because this type of order is highly stressful, it is imperative that you hire a broker in which you can thoroughly trust due to the fact that one wrong move will make you lose everything!

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