Understand and Use Conditional Orders

Conditional Orders

Types of Conditional Orders

Bracketed-OCO

Contingent

Quote Trigger/Quote Trigger Cancel (Power E*TRADE only)

One-Cancels-Other/One-Cancels-All

One-Triggers-Other/One-Triggers-All

One-Triggers-OCO

Which stocks or options are eligible for conditional orders

Market sessions for conditional orders

How are conditional orders triggered?

How are conditional orders executed?

Changing or Canceling a Conditional Order

The effects of corporate actions on conditional orders

Conditional Orders

Conditional Orders are orders that include one or more specific criteria and that will only be executed/activated in the market or cancelled if those criteria are met. Once triggered, Conditional Orders may typically result in a market order, limit order, stop order, or another type of underlying order. For more information regarding order types available on E*TRADE from Morgan Stanley, please see Understand Order Types.

Types of Conditional Orders

Bracketed-OCO

A Bracketed-OCO order combines the benefits of both a Stop order and a Limit order. This can free you up from following a stock's movement tick by tick by entering two orders, only one of which may execute depending on whether the security rises or falls.

A Bracketed-OCO order is essentially two orders in one:

• A Limit order on one side of the market; and
• A Stop order on the other side of the market

The Limit and Stop orders serve as a "bracket" around the security's current price, such that you can automatically enter or exit your position if the price reaches your Limit or Stop price. Please note that all Bracketed-OCO orders are held at E*TRADE from Morgan Stanley until they expire or one side is triggered, at which time the triggered order is sent to the market center and the other order is cancelled.

As an example, suppose that you just purchased shares of hypothetical stock XYZ at $15. Suppose also that you would like to realize a $5 profit if possible and would like to limit your losses to $3 if the stock falls. You can place a Bracketed-OCO order comprised of (1) a Limit order to sell XYZ at $20 to lock in a gain if the stock rises, and (2) a Stop on Quote order to sell XYZ at $12 to potentially limit losses if the stock falls.

As long as XYZ stays between $12 and $20, neither side of the Bracketed-OCO order will trigger. However if XYZ does rise or fall to one of those prices, one side will be triggered. Let's take a look at a couple ways this bracketed order could execute:

• Order is triggered by the upper (limit) price.XYZ rises to $20 without falling below your $12 Stop on Quote sell order price. The Bracketed order is triggered when the stock's bid price hits your upper trigger price of $20. At that time, your Limit order to sell XYZ at $20 will be sent to the market center, and your Stop on Quote order will be cancelled.
• Order is triggered by the lower (stop) price.XYZ falls to $12 without rising above your $20 Limit order price. The order is triggered when the stock's bid price hits your lower trigger price of $12. At that time, your order to sell XYZ will be sent to the market center for execution as a Market order, and your Limit order will be cancelled.

It is important to note that in the first scenario above, a Limit order is sent to the market. In this scenario execution is likely but is not guaranteed (for example if the bid were to briefly touch $20 but the stock then immediately falls before your Limit order arrives). Conversely in the second scenario above, a Market order is sent to the market. In this scenario execution is virtually guaranteed, but the execution price could be worse than your desired stop price of $12. The Bracketed-OCO trade ticket offers additional flexibility to choose other stop order types (such as Stop Limit on Quote, Trailing Stop $, or Trailing Stop %) if desired.

Please also note that Bracketed-OCO orders are essentially a type of One-Cancels-Other/One-Cancels-All order (described below) and are entered that way into E*TRADE from Morgan Stanley systems. As a result, a Bracketed order may appear in your order history as "One Cancels All".

Contingent

A Contingent order lets you place an order automatically when a condition you set for the price of a stock, option, or index is met. For instance, you can place an order to buy or sell an option when the price of a stock matches or crosses a certain level. You can also choose whether the qualifier for the trigger utilizes the Last price, Bid price, or Ask price.

As an example, say you own shares of stock XYZ and have decided you'd like to sell the shares if a certain index falls below 1,000. You place a Contingent order to sell XYZ once the index value is less than or equal to 1000. Therefore, if the index falls to or below that level, your order to sell XYZ will be triggered and sent to the market center. You can choose to have a Market, Limit, Stop on Quote, or Stop Limit on Quote order sent to the market center if the condition is met.

Quote Trigger / Quote Trigger Cancel (Power E*TRADE only)

The Power E*TRADE platforms offer contingent orders as well, with an additional variation for added flexibility. When entering an order on the Power E*TRADE platform, the user can choose to add a Quote Trigger within the "Automation" menu, which will provide two options on the next screen once the user clicks "Create Trigger":

• Send this order when the quote condition is satisfied: The user can select this option if they wish to specify a Quote Trigger that will send the order to the market center only if the condition is met. This option is the same as the Contingent order type described above, with the same available choices for trigger criteria, etc.

• Send this order now and cancel if quote condition is satisfied: The user can select this option if they wish to send the order now, and specify a Quote Trigger which will cancel the order if the condition is met. This option provides the same possible choices for triggering criteria, but this choice to send the order immediately and specify a condition to trigger a cancel is currently only available on Power E*TRADE.

One-Cancels-Other/One-Cancels-All

A One-Cancels-Other/One-Cancels-All order is an order group made up of two or three individual orders. When any one of the orders in the group meets a trigger condition, it will be sent to the market center and the other order(s) will be automatically canceled. Because the One-Cancels-Other trade ticket also provides the ability to add a third order the group, these orders are labelled "One Cancels All" on the order history page.

This type of order can be used for the same purposes as a Bracketed order. In fact, any Bracketed order can also be created using the One-Cancels-Other trade ticket. However, this trade ticket offers greater flexibility, such as the ability to use different symbols, choose between stock and option orders, or add a third order to the group. Given the added flexibility, there are a variety of other uses for this order. For instance, imagine you want to enter into a position in either a particular stock or an option in that stock. You can place a One-Cancels-Other order made up of the following orders:

• Order #1 – Buy stock XYZ at a limit price of $14.50. ABC is trading at $16 per share at the time you place your order.
• Order #2 – Buy a call option on XYZ at a limit price of $0.75. The XYZ call is trading at $1 per contract at the time you place your order.

If the Ask price of the XYZ call option falls to $0.75 before the Ask price of XYZ falls to $14.50, Order #2 will be triggered and sent to the market center as a buy Limit order and Order #1 will be canceled. Conversely, if the Ask price of XYZ falls to $14.50 first, then Order #1 will be triggered and sent to the market center as a buy Limit order and Order #2 will be canceled.

Notes:

• The triggering order in a One-Cancels-Other/One-Cancels-All group does not need to execute for the other order(s) in the group to be canceled. The other order(s) are canceled as soon as the triggering condition is met on any of the orders in the group.
• All orders in a One-Cancels-Other/One-Cancels-All group are held at E*TRADE until triggered, at which time they are sent to the market center as either Market or Limit orders, depending upon the price type selected. This means that you will not see your order represented in the market until it is triggered, but this eliminates the risk of receiving executions for more than one order.
• Individual orders in order groups can be entered for either stocks or options, and the security type does not need to be consistent across all orders in the group.
• In One-Cancels-Other/One-Cancels-All groups, you can choose to enter option limit orders as "trigger when presentable" (instead of marketable). This means that a buy order will be triggered if the Bid price (instead of the Ask price) is equal to or lower than your limit price, and a sell order will be triggered if the Ask price (instead of the Bid price) is equal to or higher than your limit price.

One-Triggers-Other/One-Triggers-All

A One-Triggers-Other/One-Triggers-All order is an order group made up of two or three individual orders. When the primary order in the group is fully executed, the other order(s) will be activated as live orders. Because the One-Triggers-Other trade ticket also provides the ability to add a third order the group, these orders are labelled "One Triggers All" on the order history page.

A One-Triggers-Other order can be especially useful if you'd like to open a position in a security and then immediately place a secondary order to:

• Limit your losses in the position with a stop on quote, stop limit on quote, or trailing stop
• Set a profit target price at which you'd like to close out the position with a limit

As an example, imagine you place a One-Triggers-All order group made up of the following orders:

• Primary order – Buy 100 shares of stock ABC at a limit price of $14 per share. ABC is trading at $15 per share at the time you place your order.
• Secondary order – Sell 100 shares of stock ABC at a limit price of $24 per share.

Your primary Limit order to buy ABC at $14 will be sent to the market center immediately, and will remain open until it is executed, expired, or canceled. If the price of ABC falls to $14 then the primary order will likely execute. After it is determined that the entire 100 shares in your primary order have been executed by the market center, the secondary order (the Limit order to close out your position) will be activated and sent to the market center as a Limit order for the sale of 100 shares at $24.


Notes:

• Individual orders in order groups can be entered for either stocks or options, and the security type does not need to be consistent across all orders in the group.
• For the primary order in a One-Triggers-Other/One-Triggers-All group, only Trailing Stop orders are still held at E*TRADE after being entered (this is because all Trailing Stop orders are held at E*TRADE until the stop price is reached, at which time they are sent as Market orders). Primary orders of all other price types are sent to the market center as soon as they are received (or prior to the next market open if entered during non-market hours). Similarly, for the secondary order, Trailing Stop orders are the only order type still held at E*TRADE after being activated (by the execution of the primary order). All other price types are sent to the market center upon activation.

One-Triggers-OCO

A One-Triggers-OCO order is an order group made up of a primary order and a secondary One-Cancels-Other (OCO) order group. If/when the primary order is fully executed, the OCO order group will then be automatically activated. This type of order can be especially useful if you'd like to open a position in a security and then automatically place a combination of orders to simultaneously minimize your loss risk and set your profit target.

Tip: The One-Cancels-Other component of a One-Triggers-OCO order will behave exactly like the One-Cancels-Other order type described above.

As an example, imagine you place a One-Triggers-OCO order group made up of the following orders:

• Primary order – Buy 100 shares of stock ABC at a limit price of $14. ABC is trading at $15 per share at the time you place your order.
• Order #1 of OCO group – Sell 100 shares of stock ABC at a limit price of $24.
• Order #2 of OCO group – Sell 100 shares of stock ABC at a stop-limit on quote price of $10.

The primary order in your One-Triggers-OCO order group will be sent to the market center immediately. If the share price of stock ABC falls to $14, the order will then likely execute. After it is determined that the order has executed in full, the OCO group will be triggered and activated. In this example, you are intending to close out your position if the price of ABC reaches $24 or falls to $10.

Notes:

• Individual orders in order groups can be entered for either stocks or options, and the security type does not need to be consistent across all orders in the group.
• For the primary order in a One-Triggers-OCO group, only Trailing Stop orders are still held at E*TRADE after being entered (this is because all Trailing Stop orders are held at E*TRADE until the stop price is reached, at which time they are sent as a Market order). Primary orders of all other price types are sent to the market center as soon as they are received (or prior to the next market open if entered during non-market hours). Similarly, for the secondary order, Trailing Stop orders are the only order type still held at E*TRADE after being activated (by the execution of the primary order). All other price types are sent to the market center upon activation.
• Both orders in the OCO component of a One-Triggers-OCO group are held at E*TRADE until one of them is triggered, at which time the triggered order is sent to the market center as either a Market or Limit order, depending upon the price type selected.
• In the OCO component of One-Triggers-OCO groups, you can choose to enter option limit orders as "trigger when presentable" (instead of marketable). This means that a buy order will be triggered if the Bid price (instead of the Ask price) is equal to or lower than your limit price, and a sell order will be triggered if the Ask price (instead of the Bid price) is equal to or higher than your limit price.

Which stocks or options are eligible for conditional orders

For stocks and ETFs:

You can use conditional stock/ETF orders for all National Market System ("NMS") securities (i.e. non-OTC stocks and non-OTC ETFs) trading at $1 or more per share. Occasionally, some securities will be restricted due to trading halts or unusual market conditions.

For a conditional order to be placed on a stock/ETF – or a contingent order to be set on the price of a stock/ETF – the security must be trading at $1 or more per share at the time the order is submitted. The $1 minimum applies to the bid price for sell orders and the ask price for buys. If the price falls below $1 after order submission, the conditional order will remain valid. In many cases, stocks trading below $1 can be bought or sold using our regular order functionality.

E*TRADE is unable to accept conditional orders for preferred stocks, or for Over-the-Counter securities.

For options:

Conditional orders can be placed on options listed by the Options Clearing Corporation (OCC). Occasionally, some options or options classes will be restricted due to trading halts, unusual market conditions, or other reasons.

E*TRADE is unable to accept conditional orders for rights or warrants.

Market sessions for conditional orders

You can enter a conditional order at any time. If your order is received during regular market hours for the particular security, it will be reviewed and processed in real time. If it is received outside of regular market hours, it will be reviewed and processed prior to the open of the next regular market session.

All conditional orders are monitored on a tick-by-tick basis in real time – and will trigger if conditions are met – during regular market hours. Conditional orders will not be monitored or triggered outside of regular market hours. Prices during extended hours sessions will not impact conditional orders or cause them to trigger.

Hours for regular market sessions are shown by security type in the following table:

Note:
Hours may vary based on holidays and other market closures. For specific options, market hours may vary from the regular session times shown above.

How are conditional orders triggered?

Most conditional orders – with one exception, as shown below – are held at E*TRADE and sent to the market center only when certain triggering conditions are met. The following table describes these triggering conditions in detail.

Exception:

Primary orders in One-Triggers-Other and One-Triggers-OCO order groups—when the primary order is anything other than a Trailing Stop—are not held at E*TRADE. In these cases, the following triggering conditions do not apply. Additionally, Power E*TRADE Quote Trigger Cancel orders which are anything other than a Trailing Stop are also sent to market immediately, and then cancelled if the trigger condition is met.

Notes:

• There are various risks associated with conditional orders – including the potential lag time between when a triggering condition is met and when the order is executed.

How are conditional orders executed?

Conditional order types are sent to the market center as shown in the table below.

Notes:

• A conditional order sent to the market center as a Market order may execute at a price that is away from the bid or ask price at the time the order was triggered.
• For securities with low trading volumes, market centers may require additional time for execution. In these cases, it is possible that Market orders will be executed higher or lower than the price that triggered the order.
• If an order is sent to the market center as a Limit order, execution is not guaranteed. Should market conditions change after the time of the trigger, the order may remain open at the market center and not executed.
• Be sure to read about the risks associated with conditional orders – including the potential lag time between when a triggering condition is met and when the order is executed – before placing a conditional order of your own.

Changing or Canceling a Conditional Order

At this time, you cannot change Contingent orders, Quote Trigger/Quote Trigger Cancel orders, or conditional order groups (Bracketed-OCO, One-Cancels-Other, One-Triggers-Other, or One-Triggers-OCO) after order placement. The only way to change one of these orders is to cancel it and then place a new order with the revised instructions.

You can submit a request to cancel any conditional order as long as the order is still open. Orders that have been triggered and that have been sent to the market center for execution as market orders may not be cancelable.

All cancellation requests are subject to prior execution of your order and are not guaranteed. We'll send a Smart Alert to your account letting you know exactly what happens with your order.

Cancellation requests submitted to and accepted by E*TRADE during regular market hours (normally 9:30 a.m. to 4 p.m. ET for most securities) are sent to the market center immediately and applied as soon as cancel confirmation is received. E*TRADE processes cancellation requests on a best efforts basis. However, there are a number of factors, including volume of trading on a particular security and overall conditions in the marketplace (over which E*TRADE has no control) that may inhibit your ability to cancel an order. Cancellation requests submitted outside of market hours can be accepted before the next regular market session and are generally confirmed immediately, but may not be confirmed until the next market session. You are responsible for the outcome of any cancellation requests including if a request is not received prior to the execution of your order.

The effects of corporate actions on conditional orders

A "corporate action" is an event that is agreed upon by a company's board of directors and authorized by its shareholders that causes a material change to the company's securities. Examples of corporate actions include stock splits, ticker symbol changes, and mergers. Corporate actions may require special attention for any pending conditional orders.

Due to the complexity of conditional orders, E*TRADE may cancel all conditional orders when any corporate action occurs including, but not limited to: a stock split, a ticker symbol or company name change, or the declaration of a dividend. Conditional orders involving options may be canceled if any of these corporate actions take place on the underlying stock.

If one of your conditional orders is canceled because of a corporate action, you'll receive notification via a Smart Alert, and in most cases you'll be able to place a new conditional order involving the same security once trading resumes. Some corporate actions, however, cause trading in a security to be halted or interrupted.

Regulations also require that certain limit and stop order prices be adjusted by the amount of a dividend payment on the date that a security begins to trade "ex-dividend" unless the order has been marked "Do Not Reduce" ("DNR"). Due to complexities with the adjustment of conditional orders, all contingent and conditional order types are entered as DNR and are not adjusted for dividends.