Discretion

Discretion, in trading, means letting a trader deviate from a rigid, pre-set rulebook and use judgment in the moment. It shows up in two quite different contexts, and it helps to keep them separate.

The first is account discretion: an investor gives a broker or account executive permission to make certain decisions on their behalf, such as choosing the exact price or timing of an order, without checking back first. This is a formal arrangement, usually requires paperwork, and puts real trust (and legal responsibility) on the person holding the discretion.

The second, more common use among active and day traders, is personal or strategy discretion: a trader has a general plan (a setup, a set of conditions to look for) but leaves room to adjust position size, entry timing, or exit based on what the market is actually doing, rather than following a fully mechanical, if-this-then-that system. A "discretionary trader" is the opposite of a "systematic" or "rules-based" trader who lets an algorithm or a fixed checklist make every decision.

The nuance that trips people up is that discretion is a spectrum, not a switch. Almost no one trades purely mechanically or purely on gut feel; most traders sit somewhere in between, with a plan that has some fixed rules and some judgment calls. The word is also sometimes loosely used to mean simply "flexibility" in an order type or execution instruction, without any formal grant of authority — so it's worth checking, from context, whether someone means the legal/account sense or the trading-style sense.