The removal of a previously placed order to buy or sell securities as demanded by a trader before it has been filled and executed on an exchange. This involves the alternation of an order type (from a buy order to a sell order or vice versa) so that the order is cancelled and a new order is placed.
Reasons for cancellation do vary. An example is the possession of private information about the fundamental value of a security (the so-called informed event), where a trader posts limit orders during pre-opening time and then finds out that these orders were in contradiction with this information. The trader, acting on self-interest, would cancel these orders and submit, instead, an order that reflects the private information. Effectively, the cancellation of a previous order depends on the occurrence of such an informed event and is expected to have a significant impact on the intensity of the bid/ ask process.
In this sense, an order cancellation is not an order revision, as the former implies full removal from an order book and re-submission of a new order, while the latter involves alteration of an order’s price or volume, etc.
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