photo credit: muztiko

Going “All In” is best known in the poker world, but also shows up in investing in the form of the All or None qualifier.

All or None is an option when buying or selling a security much like choosing the type or duration of the order. What All or None means is that the order will not be filled unless it can be filled in its entirety. Let’s say you place a limit order to buy 100 shares of stock at $50 each:

• Without using the All or None qualifier, your order would be filled as the stock became available at that price. So if there were any shares available at $50, you would buy them. As more were offered at that price, you would continue to buy them until you had the 100 shares you requested. You could end up making your purchase over the course of many transactions. In a highly liquid market, these multiple transactions might appear to occur at almost the same time.

• If you selected the All or None qualifier for the transaction above, your order would not be filled until a full 100 shares were available at your price. You would then get your shares in a single transaction. So, like the name implies, you either get all of your shares, or none of them.

The main scenario where I use All or None is when a deal only makes sense if I can get the full amount I’m after. Commissions are usually a contributing factor. Let’s say I’m trying to buy 10 call options at $0.05 each. At Scottrade, I pay a $7 commission plus $1.25 per contract. So my total commission on 10 contracts would be $19.50. Spending $19.50 to buy $50 worth of options is pretty expensive, but would get even more expensive if only a portion of my order was filled. If I didn’t use the All or None qualifier and could only get 1 contract at my price, I’d pay $8.25 in commissions to buy $5 worth of options. The $7 commission on the order is charged whether the order is only partially filled or fully filled. If I can’t wait for the rest of the order to get filled (because options are expiring, I placed a day order and the exchange is closing,etc) the commissions become a major contributor to my cost basis.

The downside of using the All or None qualifier is that it’s less likely that your order will get filled at all, hence the ‘None’ in the name. These orders are also seen as the lowest priority, so even if sufficient volume exists for your order to be filled, other orders (without the All or None qualifier) may be filled first, reducing the volume at your bid price so that your order is not filled.

I’ve had All or None orders sitting open, while other trades were happening at my limit price. By changing the order to not include All or None, it was quickly filled in a series of rapid transactions. Seeing executions at a certain price may entice new sellers to enter the market. A stagnant market, due to your order being All or None, offers no such enticement.

The All or None qualifier is useful in cases where your deal only makes sense if it can be filled completely. Missing a good deal is usually better than being stuck with a bad one. For most transactions, All or None will have little positive effect. As a result, the downsides probably tilt the balance in favor of not using them regularly.