There are two distinct order types when trading. Day orders will remain active for the current day and are automatically canceled at the end of the day if they haven’t filled, writes Markus Heitkoetter of Rockwell Trading.

On the other hand, a GTC order stays in effect until it is filled or removed.

Now, which of these two order types would you rather use? What is the difference in use between day orders and good-till-canceled orders?

Five Topics That Must Be Known Before Order Placement
  • Are you looking to buy or sell? You must decide whether you wish to trade this specific position 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 good-until-canceled order (GTC)?
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, if you placed an order the day prior, it will NOT still be an active order on the next day. If you are ever unsure of when the markets open and close? On the East Coast, trading sessions last from 9:30 am to 4:00 pm EST. 

Now, one of the following two events will occur when it comes to day orders.

1) The order might fill. Depending on when you set the order, what you set your strike prices to, and how much premium you’d like to collect or spend for the asset. If the criteria for your day order have all been met, the order will fill.

2) The order might not fill. If the criteria for your order have not been met by the end of that trading session, the order will cancel and show up under your canceled or failed orders.

When Should You Use Day Orders vs. Good-Till-Canceled Orders?

When placing day orders, the user may enter a trade at any time during the trading day.

It makes no difference whether you’re buying or selling a stock or option, as long as you’re wagering on an improving market order scenario. People will always be around to take the other side of your trade. Sometimes, the market maker even ends up filling orders if they view it as favorable on their end.

You should use a day order if you feel that your conditions will be met over the course of that day but don’t want to look at that specific asset all day.

Remember all these key points when you’re deciding between day orders or GTC orders:

  • 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?

How to Use a Day Order

When placing a day order, you will also be asked to choose between a market or a limit order (the price of which is called the limit price). These two terms are commonly used together so we will as well.

A market order is used if you want to enter into a position as quickly as possible to receive a fill. Alternatively, a limit order or its associated limit price allows you to set minimum and maximum parameters at a certain price to help you get a better deal. The limit order (limit price) really can make a big difference.

Software and Technical Indicators

Some day traders and swing traders use intraday indicators that tell them which stocks to get into based on the market price, the current stock price, the time frame, and others. These traders usually use technical analysis to improve their trading.

At Rockwell Trading, we use a custom-built software called The Power X Optimizer. This unique software scans over 12,000 stocks and ETFs every two minutes, providing traders with more accurate data to trade off of.

Moreover, the Power X Optimizer also has a filter, allowing you to scan for stocks that meet your specific criteria. It even recommends strike prices to make your life easier. If you are interested in hearing more about it, click HERE.

When to Use a GTC Order?

Some traders prefer good-till-close orders because they can choose to only enter a position if certain criteria have been met. More so, an order can fill while you are doing something else entirely. These good-till-close orders can last weeks or even months, allowing the trader to enter the position only when it works for them. Remember, it is always important to check with your broker to make sure you can easily distinguish between these two order types on their platform.

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 close GTC order as part of their services, they usually handle them internally. Like we stated previously, review your broker and make sure you understand everything properly before placing a trade.

Bottom Line

We have laid out in this article, two distinct order types that you should remember, Day orders and good-till-cancelled orders (GTC orders). We also reviewed a market and limit order (as well as limit price) briefly since those overlap as well. Remember that day orders are good for that day only whereas GTC orders last until canceled or the order is filled.

Learn more about Markus Heitkoetter at Rockwell Trading.