Cancellation of shares meaning
Cancellation of shares is the ability of the investor to cancel any order of buying or selling securities that have not been executed yet. The orders take a certain time to complete depending upon the selected price, asset liquidity, or other conditions set by the investors. Such orders are marked “pending” on the broker’s stock trading platforms. Investors can cancel these pending orders if their investment decision has changed.
Step By Step Guide On How a Cancelled Order Works
Now that we have understood what cancellation of shares means, let us know how a canceled order works. An order to buy or sell a stock executes immediately, and canceling a processed order is impossible. However, specific orders take time to complete depending upon the additional criteria it comes along. Examples of conditional orders that can take additional time to execute are:
- A purchase order which is lower than the Bid price.
- A sell order which is higher than the Ask price.
- An order to sell a security that has few buyers available.
Let us understand what is the meaning of cancel with the help of an illustration:
Step 1: Investor X places an order to purchase a share of company ABC for Rs. 250
– The shares of company ABC are currently trading at Rs.255
– The purchase order, in this case, cannot be executed until the stock price falls to Rs. 250
– The purchase order appears “pending” until it can meet the criteria set by the investor
Step 2: The investor monitors the share price movements of the company ABC.
– Let us assume that the share price is slowly falling and currently stands at Rs.252
Step 3: Reanalysing the investment decision
– The investor now believes that the share price will reach Rs.250; however, she expects it to fall further due to current industry trends and other external factors
– The investor no longer sees any potential in this investment
Step 4: Cancellation of shares
– Investor X reaches out to her stockbroker and places a cancellation share order
– The “pending” order now stands canceled and will not be executed even if the price reaches Rs.250
Procedure for cancellation of shares
Investors can cancel or modify their pending orders by reaching out to their stockbrokers. It can be done manually over a call or by using their online platforms – the latter being the most preferred and easy-to-use approach. Investors can follow these simple steps to cancel their orders:
Step 1: Log in to their online trading platforms
Step 2: Click on the link that redirects them to their order book
Step 3: Find the “pending order” that needs cancellation
Step 4: Click on the pending order
Step 5: Select “modify” or “cancel” depending on the requirement.
The “modify” option will take the investors to a new page that allows them to modify their orders, whereas the “cancel” option will execute the cancellation of the entire order. Investors must check with the stock exchanges about the business hours during which they can cancel the orders.
While the investors always have the option to cancel their pending orders manually, a few may not have the time to monitor their pending orders and take corrective actions. In such cases, investors can choose from customized orders that auto-cancel if the set criteria are not met. For example, a Fill or Kill (FOK) order is auto-cancelled if the ordered quantity of shares is unavailable in the market. Similarly, an Immediate or Cancel (IOC) order is auto-cancelled if it fails to execute immediately.
