Have you ever wondered what the difference is between Day Orders Vs Good Till Canceled Orders (GTC)? Both of these are important for traders and I’m going to explain why!
Day Order Vs GTC Order Definitions
In trading, there are two specific order types that you can use. Day Orders are exactly as they sound: they will remain active for the current day and then are automatically canceled if they haven’t been filled by the end of the trading session.
Then there are the GTC, or Good-Til-Canceled Orders. These orders stay in effect until they are either filled or canceled by the trader.
In today’s article, I’ll be covering which order type to use and when to use them. I’ll also take a deeper look at the difference between the two orders, and know exactly how to utilize them to benefit your trading!
Five Topics That Must Be Known Before Order Placement
- Are you looking to buy or sell? For every trade, you must first decide which position you are taking and how you’d like to trade it.
- The specific price points at which you want to buy or sell. This is also referred to as the Strike Prices.
- What type of asset are you trading? Are you trading stocks, options, futures contracts, or even ETFs?
- The number of stocks, options, or ETFs you wish to trade.
- When would you like your expiration set and do you even want to trade it that day? In other words, are you placing a Day Order or will it be a Good-Til-Canceled Order (GTC)?
You’ll be ready to enter your trade when you know each of these five things. If you know me, you know I always enter a trade with a plan. Knowing these five things helps me ensure I’m in total control of the trade.
When To Use Day Orders
When you place Day Orders, it indicates to the broker that the order is valid for that specific trading day only. In other words, when the markets close at 4:00 PM EST, that Day Order is going to be canceled if it hasn’t been filled.
Below, you can see an example of a Day Order:
Nothing too fancy, just a typical, straightforward Day Order. Here are the two outcomes of this Day Order trade:
- The Order will fill. Depending on things like your strike price or the amount of premium you want to collect, the order might fill. That’s okay since you entered all of the parameters that you wanted for the trade. If those criteria are met, then the Day Order will fill and you should be happy with your trade.
- The Order does not fill. Also fine! It means one of the criteria that you were looking for in the trade was not met. When this is the case, the Day Order will automatically cancel at the end of the day. You won’t be charged any trading fees and it will show up as a canceled or failed transaction.
When Should You Use Day Orders vs Good Till Canceled Orders?
When trading with Day Orders, you are able to enter a trade at any time during the trading session.
It doesn’t matter if you are buying or selling a stock or option. Just remember that there are always going to be traders who will take the other side of your trade. If you are selling options, there will almost always be buyers and vice versa.
Sometimes, the Market Makers will even fill orders if they view it as favorable on their end.
So, you should use a Day Order if you feel that all of the conditions for your trade will be met during the course of that day. This saves you from having to watch the stock all day.
This is a list of things I always have on my mind when deciding on whether to use a Day Order or a Good-Til-Canceled Order:
- What asset do you wish to trade and does it make more sense to control it now or later?
- What trading position are you taking? Do you want to buy or sell?
- If trading options, how many contracts do you want to trade?
- Lastly, what is the current market price compared to your strike prices? Are you getting a favorable deal right now?
Let’s keep going!
How To Use A Day Order
When you enter your Day Order, you’ll also be asked to choose between a Market Order or a Limit Order. These two terms are often used together, so I will as well. Here’s what they mean.
A Market Order is used if you want to enter the trade as fast as possible to receive a fill. Whereas a Limit Order allows you to set a minimum and maximum parameter for the trade. This helps you get the best possible price. The Limit Order Price can make a huge difference to the profits of your trade.
Software and Technical Indicators
Day Traders and Swing Traders often use intraday technical indicators. These can help with notifying them which stocks are setting up for a nice trade situation. These indicators are used based on things like the market price, current stock price, time frame, etc. These traders use technical analysis to assist them in trading.
Here at Rockwell Trading, we use a slightly different method. We have a custom-built software called the PowerX Optimizer. What does this platform do? It scans over 15,000 different stocks and ETFs! From that scan, it can provide traders with real-time, accurate data for you to trade off.
On top of this, the PowerX Optimizer also has a filter that allows you to make your own fully customizable scan. Every trader has different criteria for a trade, so you can enter yours based on your risk tolerance and what your profit goal is for the trade. It can even recommend strike prices to make your life that much easier!
If you are interested in learning more about the PowerX Optimizer, check this out!
When To Use A GTC Order?
Some traders prefer Good-Til-Canceled Orders because they can choose to only enter a position if certain criteria have been met. In this way, you have total control over when you enter a trade. If the criteria are not met, then the trade will not fill.
These are nice because GTC orders do not require you to just sit at your computer all day. You can set your GTC Orders and then leave them for days, weeks, or even months!
Here’s an example of a GTC Trade:
Before making any trades, you should always confirm with your brokerage that it is easy to distinguish between a Day Order and a GTC Order. You never want to be on the wrong side of a mistake when trading!
What Are The Risks Associated With Day Orders Vs Good Till Canceled Orders?
Options trading does have risks associated with it, and both of these orders are no exception. Your entire investment between when you set the order and when the order was filled (your past performance) may be different. You may no longer even want the position, forgetting you ever set a GTC order on it.
That being said, although most brokerages offer a day order vs good till canceled order as part of their services, they usually handle them internally. As we stated previously, review your broker and make sure you understand everything properly before placing a trade.
So now I’ve laid out the differences between the two distinct order types in trading: the Day Order and the Good Till Canceled Order. I even threw in a bonus lesson on market orders and limit orders! How’s that for multi-tasking?
Just to review:
- Day Orders are good for that day only
- GTC Orders are good until canceled or filled
Finally, I also spoke about the importance of using good, reliable software. This can help with indicators and determining things like strike prices and premiums made. Here at Rockwell Trading, that means using the PowerX Optimizer software. I highly recommend you check it out HERE.
Closing Thoughts On Day Orders Vs Good Till Canceled Orders
So that’s it! Another lesson on trading that I hope you can take away and use for your own strategies.
If you’re interested in the way I think and trade, I have a book for you called the Wheel Options Strategy. You can grab a copy HERE.
If reading isn’t your thing, I also have a 45-minute video on trading the Wheel Strategy where I go over every detail. You can check it out HERE.
Interested in learning more trading tips and strategies? Head over to our website at RockwellTrading.com for all of my articles like this one!