In the fast-paced world of Contracts for Difference (CFD) trading, timing and execution are everything. Traders rely not only on their strategies and analysis but also on how effectively their orders are handled in the market. The concept of order execution may sound straightforward—place a trade and let it run—but the underlying mechanisms can significantly affect the outcome. One particularly nuanced aspect of execution in CFD trading is the not-held basis. Understanding this can help traders make more informed decisions, especially in volatile market conditions where precision and flexibility matter most.
Order execution dynamics in CFD markets differ from traditional equity trading because CFDs are derivatives that track the price movements of underlying assets without ownership. This distinction means that how and when trades are executed becomes even more important to ensure accuracy, fairness, and alignment with the trader’s intent. The “not-held” order type is one of the mechanisms designed to give both traders and brokers some flexibility—but that flexibility comes with its own set of considerations.
The Fundamentals of Order Execution in CFDs
In CFD trading, order execution refers to the process of filling a trader’s buy or sell request at a given price. Brokers may use various execution models such as market execution, instant execution, or hybrid systems that incorporate both dealing-desk and non-dealing-desk components. Each model determines how quickly and at what price trades are completed.
Speed and accuracy are crucial. For example, during high-volatility events—such as economic data releases or central bank announcements—prices can shift rapidly. A delay of even a fraction of a second may lead to slippage, where the actual execution price differs from the one requested. This is where order types play a vital role, giving traders options to manage how their trades interact with market conditions.
While some traders prefer strict control through “held” orders—where the broker must execute at the specified price or not at all—others choose “not-held” orders for greater flexibility and potentially better execution outcomes.
Decoding the Not-Held Basis
To understand the not-held basis, it helps to first define the concept in context. A not-held order allows a broker or dealer a certain level of discretion in executing the trade. Rather than immediately filling the order at the first available price, the broker is “not held” to execute it instantly. Instead, they can use their judgment to determine the best possible time and price to enter or exit the position, based on current market dynamics.
This type of order can be beneficial in fast-moving or thinly traded markets. By allowing some leeway, traders may receive a better average price than if the order were executed rigidly. However, it also requires a degree of trust in the broker’s ability to make sound decisions on the trader’s behalf.
If you’re wondering specifically what is a not held order is, it’s an order type that essentially says to the broker, “You decide when to execute this trade to get me the best possible outcome.” The broker, therefore, is not legally bound to execute at a particular price or time, but rather to act in the client’s best interest within reasonable discretion.
How the Not-Held Basis Works in Practice
In practice, a not-held order functions as a balance between automation and human judgment. While algorithmic systems can quickly identify execution opportunities, human brokers—or sophisticated AI-driven platforms—can interpret broader market sentiment, liquidity conditions, and timing nuances that algorithms might overlook.
Let’s consider an example. Suppose a trader wants to buy a CFD on a major stock index, but the market is volatile due to an upcoming earnings report. By placing a not-held order, the trader gives the broker permission to wait for an opportune moment—perhaps when the initial volatility subsides—to enter at a more favourable price. This can lead to better fills, reduced slippage, and lower trading costs in some cases.
Advantages and Limitations of Not-Held Orders
The main advantage of a not-held order lies in its adaptability. In CFD markets, where liquidity and spreads can vary significantly depending on the asset and time of day, this discretion can enhance execution quality. Traders who prioritise best execution over immediate execution often prefer this approach.
Not-held orders can be particularly useful for large-volume trades. Executing a substantial order all at once can move the market and result in a worse average fill price. A not-held basis allows brokers to split the trade intelligently, executing portions over time to achieve a more balanced outcome.
However, the flexibility of a not-held order can also be a double-edged sword. Traders relinquish some control and transparency over the precise timing and price of their trades. This reliance on the broker’s judgment requires trust, and not all brokers apply the same standards of execution quality. Furthermore, during periods of extreme volatility or low liquidity, even discretionary execution may struggle to secure an optimal outcome.
Conclusion
In the world of CFD trading, where milliseconds can make or break a trade, understanding the nuances of order execution is essential. The not-held basis represents a thoughtful balance between structure and flexibility, enabling brokers to seek out the most favourable conditions for their clients. But with that flexibility comes a need for trust, transparency, and awareness of potential risks.
