Contingency Order

A stock is trading at the market sell price of $10.50. The market buy price is $10.49. You aren’t willing to buy the stock unless it’s trading at $10.45 per share. So you'll put in a buy limit order...a type of contingency order that states you will only purchase the stock if it hits a market sell price of $10.45. This is considered a contingency order, because it requires that a certain condition must be met before a trade can be executed.

The actual orders could be filled below that buy limit threshold...say, $10.43 per share if there were a sudden drop in the price. However, it will never execute outside of the parameters set by the trader.

There are other examples of contingency orders. For example, an All-or-None order (AON) is a situation where a buyer wants to purchase all of the shares at once, or no trade will be executed. This ensures that a complete order is made, and that the purchases are not broken up into various chunks, potentially leaving the order incomplete. The same could be said for an AON sell order, where the seller wants either all of the stock to be sold in a single block...or no shares to be traded at all.