A forecast can be correct and still produce no profit if a passive order never fills. Conversely, an urgent market order can surrender the forecast's entire edge in execution cost. Given an observable order book, this lesson treats order choice as a trade-off between price protection, completion and adverse selection. It also follows an instruction through acknowledgement, partial execution and cancellation so that desired quantities cannot be mistaken for positions.
Learning objectives. By the end of this note you should be able to:
- distinguish market, marketable limit and resting limit orders;
- explain trigger conditions separately from execution instructions;
- compare aggressive and passive alternatives using fill-contingent outcomes;
- reconcile requested, filled and remaining quantities;
- diagnose unsafe assumptions in a small execution simulation.
In this lesson
- Price protection and completion
- Conditions are separate instructions
- A passive fill is a selected outcome
- An order has a lifecycle
- Choosing a policy before seeing the path
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
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