Non-Directed Order

A non-directed order, in finance, is an order to a broker to buy or sell a security on an exchange of the broker's choosing.

An investor’s execution order to his brokerage, to buy or sell a security, is considered to be a directed order to a particular exchange, unless the investor explicitly states otherwise. But a non-directed order leaves the choice of exchange to the broker's discretion, on the assumption that the broker will offer or bid the exchange at the best price.

Non-directed orders became commonplace when trading moved online. Brokerage clients now have much more freedom to tailor their orders – including letting the broker pick the exchange offering the best terms. International stocks are listed on many exchanges.

For example, when Charles Schwab, the discount brokerage, arranges for the execution of non-directed orders for equities it seeks out industry-leading execution services and access to the best-performing markets — routing orders directly to major exchanges and through unaffiliated broker-dealers. It considers price, opportunities for price improvement, market depth and order size, liquidity, the trading characteristics of the security and speed and accuracy.

The Securities and Exchange Commission now monitors brokers to ensure that they are seeking out the best terms on non-directed orders. And it requires broker-dealers to notify customers if their orders are not routed for best execution.

For more on this subject, read ‘Understanding Order Execution.’