Can You Cancel a Limit Order? What Happens Next
Understand the process of canceling a limit order, why investors do it, and the immediate impact on your trading account.
A limit order serves as an instruction to a brokerage to buy or sell a security at a specific price or better. This type of order provides investors with control over the execution price of their trades. It allows for setting a predetermined price at which a transaction will occur, rather than accepting the prevailing market price.
Canceling a Limit Order
Investors can cancel a limit order before it has been fully executed. This process typically involves navigating to the “active orders” or “open orders” section within their brokerage platform. Selecting the specific order and clicking a “cancel” button initiates the cancellation request. Cancellation is usually straightforward and immediate, provided the order has not yet been filled. Brokerages strive to cancel an order, but cannot guarantee it, especially if the order is already in the process of execution.
Limit orders can be set with different durations, such as “Good Until Canceled” (GTC) or “Day” orders. A Day order remains active only until the end of the trading day and will expire if not filled. In contrast, GTC orders stay open for an extended period, often up to 180 days, carrying forward from one trading session to the next until they are either executed, expire, or are canceled by the investor.
Situations Leading to Cancellation
Investors may choose to cancel a limit order for various reasons, often driven by shifts in market conditions or personal trading strategies. A common scenario involves significant price movements that render the original limit price undesirable, such as when a stock’s price moves far from the set limit.
An investor’s strategy might also change, leading them to cancel an order if they are no longer interested or have identified a more favorable opportunity elsewhere. Errors in order entry, such as inputting an incorrect price or quantity, frequently prompt cancellations. Canceling an order can also free up reserved capital or shares, allowing the investor to deploy these assets for new trades.
What Happens After Cancellation
Upon successful cancellation, the limit order is immediately removed from the market. Any funds held for a buy order or shares reserved for a sell order are released back into the investor’s available balance. This allows the investor access to those assets for other investment opportunities.
If a limit order was partially filled before the cancellation request, the portion that was executed remains a completed trade. Only the unfilled portion of the order is canceled. Any funds or shares associated with the unfilled part are returned to the investor’s account. Brokerage platforms typically provide confirmation once an order is successfully canceled.