Time in force is a crucial instruction used when placing a trade to indicate how long an order will remain active before it is executed or expires. These options are particularly vital for active traders, as they provide the ability to set specific time parameters for their orders.
Common examples include immediate-or-cancel (IOC) and day orders.
Key Insights to Enhance Your Trading
- Control the Lifespan of Your Order: Time in force indicates how long an order will remain active before it expires with your broker.
- Order Types Matter: Utilize different order types to specify time in force for an option.
- GOTC: Common examples include day orders, immediate-or-cancel (IOC), fill-or-kill (FOK), and good-’til-canceled (GTC).
The Essentials of Time In Force
Time in force orders help active traders avoid unwanted trade executions by setting precise time parameters. This ensures they don’t have to remember to cancel outdated trades, which can be particularly costly during volatile market conditions.
Typically, active traders use limit orders to control the price they pay for a stock. This strategy often includes setting a time in force option to control how long the order stays open. While day orders are the most common, other order types might be better suited for particular scenarios.
Brokers offer various time in force order options, sometimes limited, but active traders usually have access to a full range. Acronyms like DAY, GTC, OPC, IOC, GTD, and DTC refer to these orders, and we explore them below.
Inspire Your Trading with Key Order Types
Day Orders: Day orders are canceled if they aren’t executed by the close of the trading day. This is often the default order type for brokerage accounts.
Good-Til-Canceled (GTC) Orders: GTC orders remain effective until executed or canceled. These can be ideal for long-term investors waiting for specific price points. However, they come with exceptions like stock splits, account inactivity, and quarterly sweeps.
Fill-or-Kill (FOK) Orders: FOK orders are canceled immediately if the entire order does not execute upon availability. These ensure the entire order executes at one price, making them favorable in fast-moving markets.
Additional order types include Market-on-Open (MOO) and Limit-on-Open (LOO) orders, which execute right after market opening, and Immediate-or-Cancel (IOC) orders that must be filled immediately or are canceled. Day-til-Canceled (DTC) orders deactivate at the end of the trading day instead of canceling, allowing easier re-transmission later.
Elevate Your Example of Time in Force
Meet John — a savvy trader who believes that the price of stock ABC, trading at $10 now, will increase over the next three months. He buys ABC call options with a $15 strike price and places a Good ‘Til Canceled (GTC) order. To avoid indefinite hold on the order, he sets a three-month limit. After three months, ABC is still beneath $12, so John’s order is automatically canceled.
Related Terms: Day Orders, Immediate-or-Cancel, Good-Til-Canceled, Fill-or-Kill.
