Good ’til canceled (GTC) is a type of order that allows investors to buy or sell a security and keep the order active until either the order is filled or manually canceled by the investor. While these orders provide extended flexibility and control over trading strategies, brokerages generally set a maximum time frame of up to 90 days for a GTC order to remain active.
Key Points
- Persistent Orders: A GTC order remains active across trading sessions until canceled.
- Enhanced Convenience: Simplifies portfolio management by reducing the need for daily oversight.
- Risk Management Tool: Traders can place orders to activate at specific price points, mitigating risks associated with sudden market shifts.
The Mechanics of GTC Orders
GTC orders provide a durable alternative to day orders, which cease to exist at the end of the trading day if not executed. By contrast, GTC orders do not stay active indefinitely as their longevity typically ranges from 30 to 90 days after placement to mitigate the risk of forgotten orders being unexpectedly filled.
Streamlined Portfolio Management
For investors who do not track stock prices constantly, GTC orders can be set at predefined price thresholds, empowering traders to capitalize on market movements even when they are not actively monitoring their investments. Indeed, GTC orders can serve as stop orders to limit potential losses by setting sell orders below the market price and buy orders above it.
Order Execution
Under standard conditions, GTC orders execute at the specified limit price. However, in cases of significant overnight price movements, the order fulfills at a price that may benefit the investor – higher for sell orders and lower for buy orders.
Potential Pitfalls of GTC Orders
Some exchanges, including NYSE and Nasdaq, have phased out GTC orders due to inherent risks associated with them – primarily execution during volatile periods. Such trades might happen at disadvantageous prices caused by short-term market fluctuations. Nevertheless, many brokerage firms continue to offer GTC and stop orders, handling such transactions internally.
Volatility Risk
A key risk of GTC orders surfaces during periods of extreme volatility. For instance, a sudden price dip might activate a sell-stop order, only to rally immediately after. This could result in selling low and missing out on a recovery, presenting a financial challenge for investors aiming to restore their position.
Practical Example
Consider a scenario where an investor aims to buy shares trading at $100 each but prefers to invest only at $95 or lower. By placing a GTC buy order at $95, if the market hits this price before the order is canceled or expires, the trade executes automatically, ensuring the investor acquires the shares at their desired price point.
Ultimately, GTC orders offer significant strategic advantages, simplifying the intricacies of perpetual market surveillance and allowing missed opportunities due to ongoing market volatility to be effectively managed.
Related Terms: Day Orders, Immediate or Cancel Orders, Limit Orders, Stop Orders.
References
- Nasdaq. “How to Survive the Markets Without Stop-Loss Orders”.
- New York Stock Exchange. “Elimination of Stop and GTC Order Types”.
