Sometimes called an "either-or" order or a "one-cancels-all" order, an alternative order essentially gives an investor the choice to buy one out of a number of different stocks for the best price in the shortest amount of time.
If an order is partially filled, the remaining orders will be reduced proportionately to the remaining quantity of the unfilled order. If the customer cancels an order before the execution, all orders will be canceled. If the system cancels or rejects the order, the remaining orders will not automatically be canceled.
This trading strategy is best illustrated with an example.
Let's assume an investor wants to invest $10,000 in the market, but he wants to buy stock in only one of three companies. He knows the circumstances under which he wants to buy each company (the "trigger condition”). He places an alternative order with the following trigger conditions:
a) Limit Order 1 - Company X is trading at $40. The investor places a limit order to buy Company X if it drops to $35.
b) Limit Order 2 - Company Y is trading at $42. The investor places a limit order to buy Company Y if it drops to $38.
c) Limit Order 3 - Company Z is trading at $45. The investor places a limit order to buy Company Z if it drops to $40.
Company X and Y hold steady, but Company Z drops to $40 and triggers Limit Order 3. The limit order for Company Z is executed and automatically cancels the limit orders for Company X and Company Y.