A replace order, also called a modify or cancel-replace request, is an instruction to alter an order that has been sent to a trading venue but has not yet fully traded. The trader can change the price, the quantity and sometimes other terms in a single message, instead of sending a cancel order followed by a new one. In the FIX messaging protocol used across the industry, the message is named Order Cancel/Replace Request.
The main practical point is queue position. Under the price-time priority used in most order matching systems, changing the price or increasing the size sends the order to the back of the queue at its price, while reducing the size usually keeps its place. Exact rules differ by exchange. Automated strategies replace orders constantly to follow the market, and exchanges monitor the resulting message traffic through measures such as the order-to-trade ratio.