Definition
Or Better (OB) is an instruction added to a limit order, which tells the broker to buy or sell a security at the specified limit price or at a better price. “Better” in this context refers to buying at a lower price or selling at a higher price than the set limit.
For instance, if a trader places a limit order to buy shares at $10 OB, the broker will aim to purchase the shares at $10 or any price lower than $10. Conversely, if the order is to sell at $10 OB, the broker will try to sell the shares at $10 or any price higher than $10.
Examples
-
Buying Scenario:
- A trader places a limit order to purchase 100 shares of XYZ Corporation at $50 OB.
- If the broker finds shares available at $49, the purchase will be executed at this better price.
-
Selling Scenario:
- A trader places a limit order to sell 100 shares of ABC Inc. at $75 OB.
- If the broker finds buyers willing to purchase at $76, the sale will be completed at this better price.
Frequently Asked Questions
Q: What does OB stand for in a limit order?
A: OB stands for “Or Better,” indicating the broker should execute the transaction at the specified limit price or a more favorable price.
Q: Can OB orders guarantee a transaction at a better price?
A: No, OB orders do not guarantee a better price. They only instruct the broker to seek a better price if available, but the transaction can still occur at the specified limit price.
Q: How does an OB order differ from a regular limit order?
A: A regular limit order executes strictly at the limit price, while an OB order allows for execution at the limit price or a better price if available.
Q: Are OB orders beneficial in volatile markets?
A: Yes, OB orders can be beneficial in volatile markets where prices fluctuate, potentially allowing traders to achieve better execution prices.
- Limit Order: An order to buy or sell a security at a specific price or better.
- Market Order: An order to buy or sell a security immediately at the best available current price.
- Stop Order: An order to buy or sell a security once it reaches a specific price, known as the stop price.
- Good ‘Til Canceled (GTC): An order to buy or sell a security that remains active until the investor decides to cancel it or the transaction is executed.
Online References
Suggested Books for Further Studies
- The Intelligent Investor by Benjamin Graham
- A Random Walk Down Wall Street by Burton G. Malkiel
- Reminiscences of a Stock Operator by Edwin Lefèvre
- The Little Book of Common Sense Investing by John C. Bogle
Fundamentals of Or Better (OB): Securities Trading Basics Quiz
### What does 'OB' stand for in a limit order?
- [ ] Order Balance
- [ ] Objective Broker
- [x] Or Better
- [ ] Outstanding Bid
> **Explanation:** OB stands for "Or Better," indicating the broker should transact the order at the specified limit price or a better price if available.
### In an OB limit order to buy shares, what does a 'better price' imply?
- [x] A price lower than the specified limit price
- [ ] The specified limit price
- [ ] A price higher than the specified limit price
- [ ] The market price
> **Explanation:** For buying shares, a 'better price' means a price lower than the specified limit price.
### In an OB limit order to sell shares, what does a 'better price' imply?
- [ ] A price lower than the specified limit price
- [ ] The market price
- [ ] The specified limit price
- [x] A price higher than the specified limit price
> **Explanation:** For selling shares, a 'better price' means a price higher than the specified limit price.
### If a trader places a limit order buy at $50 OB, what could be considered a better execution price?
- [ ] $51
- [x] $49
- [ ] $50
- [ ] $52
> **Explanation:** A better execution price for a buy order at $50 OB would be $49, which is lower than the specified limit price.
### Can an OB order be executed at the specified limit price?
- [x] Yes
- [ ] No
> **Explanation:** Yes, an OB order can be executed at the specified limit price if no better prices are available.
### What is the primary objective of an OB order?
- [ ] To guarantee a higher price
- [ ] To restrict the order to the market price
- [x] To aim for a more favorable price than the specified limit
- [ ] To restrict the order to the broker's discretion
> **Explanation:** The primary objective of an OB order is to aim for a more favorable price than the specified limit.
### Are OB orders commonly used in highly volatile markets?
- [x] Yes
- [ ] No
> **Explanation:** Yes, OB orders are commonly used in highly volatile markets as they provide the opportunity to achieve more favorable execution prices.
### In which scenario is an OB order highly beneficial?
- [ ] When prices are stable
- [x] When prices are fluctuating
- [ ] During off-hours trading
- [ ] During a market crash
> **Explanation:** An OB order is highly beneficial when prices are fluctuating, providing the chance to secure better trade execution prices.
### Can OB orders be used for both buying and selling?
- [x] Yes
- [ ] No
> **Explanation:** Yes, OB orders can be used for both buying and selling securities, aiming for prices lower or higher than the limit respectively.
### What is a possible disadvantage of using OB orders?
- [ ] Guaranteed worse prices
- [ ] Execution is slower
- [ ] They are not accepted by brokers
- [x] No execution guarantee at all
> **Explanation:** A possible disadvantage of using OB orders is that there is no guarantee of execution if a better price is not available.
Thank you for learning about the ‘Or Better’ order specification and exploring our quiz questions. Keep enhancing your trading strategies and market knowledge!
