As a trader, you know that timing is everything in the stock market. Executing your orders at the right moment can make all the difference in your trading success. But what if you’re unable to monitor the market continuously? What if you want to place an order and wait for the execution for an indefinite period? That’s where GTC orders come in. A GTC or Good ‘Til Cancelled order is a type of order that remains valid for an extended period, anywhere from a day, a week, months or even years. In this blog, we will delve into the details of GTC orders and explore their advantages, execution, potential risks and more.
Understanding GTC Buy Orders
A. Definition of GTC Buy Orders
A GTC buy order is an order placed by a trader to buy a security like stocks, bonds, or derivatives set to expire on a specific date. This order type, typically administered through trading platforms or with the help of brokers, is open until it is filled or cancelled.
B. How GTC Buy Orders Work
GTC buy orders can come in different forms, but often traders submit them at a specific price. When the security hits that price, the trading platform or the broker executes the order, and it remains open for an indefinite period. These types of orders help investors buy stocks or securities at predetermined prices, reducing market volatility risks and allowing traders to execute trades while they are away from the market.
C. Examples of GTC Buy Orders
For instance, let’s assume that stocks of Company A are currently trading at $100 per share, and a trader feels that they would like to purchase shares of the company if they drop to $90. The trader places a GTC buy order for Company A at $90, and if the shares at any time drop to that level, the broker will purchase the shares on their behalf.
D. Advantages of Using GTC Buy Orders
One of the most significant advantages of GTC buy orders is that the trader doesn’t have to continuously monitor the stock market to purchase shares. Additionally, traders are less likely to miss out on the desired stock purchase because their order remains open until it is filled or cancelled. This order type lowers the trading costs of placing multiple orders and increases flexibility in trading schedules.
Understanding GTC Sell Orders
A. Definition of GTC Sell Orders
A GTC sell order is an order placed by a trader to sell a security at a specific price, which remains valid until it is filled or cancelled.
B. How GTC Sell Orders Work
GTC Sell orders stay active in the market until they reach the desired price, regardless of the time it takes for the market to move in that direction.
C. Examples of GTC Sell Orders
For instance, assume that a trader purchased 500 shares of Company B at $20 per share. They predict that the company’s stock will rise in the near future, but are hesitant to spend too much time monitoring the market conditions constantly. The trader then decides to place a GTC sell order for 500 shares of Company B at $25 that remains valid for two months, hoping to cash in on the predicted gain
D. Advantages of Using GTC Sell Orders
GTC sell orders are a reliable way of increasing portfolio returns without close supervision. These types of orders offer flexibility in trading schedules and enable traders to move ahead with different opportunities without constantly monitoring existing investments.
Market Hours and GTC orders
A. Overview of Market Hours
The market hours vary by exchange, but in general, stock exchanges close between 4:00 PM and 5:00 PM Eastern standard time.
B. GTC Orders and Normal Market Hours
GTC orders are only executable during regular market hours when the exchanges are open. Trading platforms will not perform automated trading during the trading holidays or weekends.
C. GTC Orders and After-Hours Trading
Some traders opt to trade after hours, particularly when there is breaking news or large market movements at a time of day when the market is closed. However, GTC orders are not executable outside of the standard market hours. If a trader wants to execute GTC orders after hours they must wait until the market re-opens, and market movements may cause a gap between the requested price and the final execution price.
GTC Order Execution
A. How GTC Orders Are Executed
GTC orders operate like other orders, but they remain open until they are filled or cancelled. Once the price point of an active GTC order is reached, the trade gets executed as a regular market order, closing the GTC order.
B. Filling a GTC Order
Filling a GTC order is identical to filling other types of orders – it’s done via the trading platform or through direct communication with the broker. The only difference is that the order remains open, waiting to be filled at a desired price determined by the trader.
C. Cancelling a GTC Order
One of the best features of a GTC order is its flexibility – traders can cancel an open GTC order without incurring additional costs easily. Canceling an open order can be done through the trading platform, and the platform will automatically cancel an order that does not get executed within the trader-specified time.
Dealing with Gaps in GTC Orders
A. Definition of Gap Up
A gap-up happens when a stock’s opening price is higher than its closing price the previous day.
B. How Gap Up Impacts GTC Orders
A gap-up provides a tricky situation for traders with GTC orders. This is because the opening trading price may be higher than the desired price point, and the trading platform will execute the order automatically without factoring in the gap.
C. Strategies to Avoid Gaps in GTC Orders
Strategies for avoiding gaps include monitoring the market exceptionally closely and utilizing stop-loss orders to mitigate the consequences of a market gap. Setting GTC orders at a limit price point that reflects the potential gap up is another method of managing gaps.
In conclusion, GTC orders offer traders the opportunity to execute trades automatically, providing more flexibility and control to the portfolio. With GTC orders, traders don’t need to be continually monitoring the markets, reducing trading costs and the impact of volatility. However, it is essential to understand the potential risks associated with GTC orders, such as the impact of market gaps and their influence on GTC order executions. Traders who understand these risks and apply the right strategies could benefit significantly from GTC orders in the long term.
Learn Day Trading Skills with Uncommon Education Trading
Have you ever wondered what it would be like to make a living trading in the stock market? Uncommon Education Trading offers a unique approach to day trading that can teach you the skills needed to become a successful trader. With experienced mentors and a strong community of traders, Uncommon Education Trading provides a supportive environment where you can learn how to read stock charts, develop trading strategies, and manage risk. Whether you are a beginner or an experienced trader, their program is tailored to your needs. Don’t let the complexity of the stock market intimidate you – with Uncommon Education Trading, you can become a confident and profitable trader in no time.
