Following up on my last post about order types, I wanted to shed some light on another element that makes up an order for a security, Order Timing.
There are many different types of order timing that exist, but I am going to focus on what I would call the three most common among active retail traders.
- Day Only
- Good Until Canceled (GOC)
- Fill or Kill (FOK)
Day Only orders are only valid for the current trading day. If a Day Only order is submitted after the market is closed, it will be valid for the next full trading day.
You wish to place a limit order to buy 100 shares of ABC at 10.00 during the current trading day but the current share price is 11.00. If the price reaches 10.00 at some point during the trading day, the limit order will be executed and you will be the owner 100 shares of ABC at 10.00 a share.
If ABC never reaches 10.00 during the trading day, the order will automatically be canceled right after the market closes (standard market trading hours end at 4:00 PM EST).
Good Until Canceled
On paper, Good until Canceled orders (often abbreviated as GTC) keep orders active until they are either filled or explicitly canceled. In actuality, brokers have a maximum amount of time they allow orders to be active, typically between 60 and 90 calendar days, and thus effect the longevity of GTC orders.
Similar to the example above, you wish to place a limit order to buy 100 shares of ABC at 10.00 per share, but are willing to wait for the stock to hit your limit price.
If the price reaches 10.00 at some point during life of the order (sometime before the maximum allowable time by the broker), the limit order will be executed and you will be the owner 100 shares of ABC at 10.00 a share. If ABC never reaches 10.00 during the life of the order, it will be canceled.
Fill Or Kill
This last order type, Fill or Kill (often abbreviated at FOK) orders are canceled if they are not immediately able to be fully filled. This order type is commonly used by day traders to ensure their entire order executes at a single price.
You wish to buy 100 shares of ABC at 10.00 a share. The current bid price is 9.90 and the current ask price is 10.05. You think there is a chance your order can get filled between the bid and ask prices and want to ensure you get shares of ABC for exactly 10.00 a share at that very moment. You submit a limit order with FOK timing. In the time it took for the exchange to receive your order, the price of ABC jumps up .10 to 10.10. At this point you order is immediately canceled.
In the case where there is a seller willing to sell 100 shares of ABC at 10.00 when your order is submitted, your order will be executed and you will buy 100 shares of ABC at 10.00.
If that same seller was only willing to sell 50 shares, but not 100, the order would also be canceled immediately as your entire order for 100 shares could not be filled at that time.
- In combination with order types, such as a stop or limit orders, order timing can help automate your trading
- Check to see what your brokers expiration timing is for GTC orders
Feel free to leave questions in the comments below or on twitter.