A discretionary order is an instruction where the client grants a broker authority to decide certain details of a trade, such as the price, the exact time, or the venue, within agreed limits. This contrasts with a non-discretionary order, where the client specifies all terms and the broker executes only as directed. The client typically sets constraints (for example, a maximum price, minimum quantity, or a time window) and the broker uses those rules to complete trades on the client’s behalf.
Discretionary orders are offered in discretionary accounts managed by brokers or investment advisers. They can streamline execution when a rapid response is needed or when a client prefers professional oversight for ongoing asset management. The broker decides the actual trade details within the prescribed parameters and then routes the order accordingly. The arrangement is designed to balance client autonomy with professional judgment, and it is subject to disclosure, compliance rules, and best-execution obligations.
In market microstructure, discretionary orders contribute to order flow that brokers can route to various venues, potentially affecting price formation and liquidity in the short term. Because the broker controls timing and price within constraints, execution can differ from a fixed, client-directed order, and venue selection may influence available liquidity and latency. Regulators expect brokers to seek best execution within the constraints of the discretionary agreement.
An investor with a discretionary account authorizes the broker to execute trades that rebalance a portfolio within a specified price cap and time window, allowing the broker to determine the exact price and moment of execution.
An investor with a discretionary account authorizes the broker to execute trades that rebalance a portfolio within a specified price cap and time window.
Non-discretionary order · Discretionary account · Limit order · Market order · Best execution · Trade routing