Switch Orders (Swap Orders)
The term switch order refers to broker instructions to sell one security and buy another if a specified price differential exists. A switch order allows a trader to use the proceeds from a sale to fund the purchase of securities.
Also referred to as swap orders and contingent orders, a switch order instructs brokers to sell one security and purchase another if a certain price differential presents itself in the market. These instructions are also known as proceeds orders when the funds from the sale are used to purchase securities.
The most common forms of switch orders include:
- An order to sell one security combined with instructions to purchase another at a limit price.
- An order to buy one security combined with instructions to sell another at a limit price.