A Good ‘Til Canceled (GTC) order is a type of buy or sell order used in stock trading that remains active until it is either executed or the investor manually cancels it. This contrasts with other order types that may expire at the end of the trading day if not executed.
How a GTC Order Works
Mechanism of GTC Orders
When an investor places a GTC order, the order stays on the books for an extended duration, continually seeking to be filled at the specified price or better. This ensures that the order doesn’t need to be re-entered daily, providing convenience for the investor.
Execution and Expiration
GTC orders can be executed at any point when the stock price meets the investor’s specified price conditions. However, it is important to note that brokers may have their own expiration policies for GTC orders, typically ranging from 30 to 90 days.
Example of a GTC Order
Consider an investor, Jane Doe, who decides to buy 100 shares of Company XYZ at $50 per share, but only if this price condition is met. She places a GTC order with her broker. If XYZ’s share price reaches or falls below $50 while the order is still active, Jane’s order is executed, and she will own the shares. If the price does not reach $50, the order remains active until Jane cancels it or it expires per the broker’s conditions.
Benefits and Drawbacks
Benefits
- Convenience: No need to re-enter orders daily.
- Long-Term Strategy: Useful for investors with long-term price targets.
- Market Opportunities: Ensures investor participates in price movements without constantly monitoring the market.
Drawbacks
- Potential for Overlooking: Investors may forget about their GTC orders.
- Broker Policies: Different brokers have varied expiration timelines and policies for GTC orders.
- Market Movements: Market volatility may result in unintentional order executions.
Historical Context
The concept of GTC orders has evolved alongside the growth of electronic trading and the increasing complexity of financial markets. Originally, longer-term orders were primarily used by institutional investors, but technological advancements have made them more accessible to retail investors.
Applicability
GTC orders are commonly used in stock and options trading. They are suitable for investors who:
- Are unable to monitor the market continuously.
- Have specific entry or exit price targets.
- Wish to automate their trading strategies over a longer period.
Comparisons
GTC Order vs. Day Order
| Feature | GTC Order | Day Order |
|---|---|---|
| Duration | Remains active until canceled | Expires at end of trading day |
| Convenience | High | Requires daily re-entry |
| Use Case | Long-term strategies | Short-term, daily trades |
Related Terms with Definitions
- Limit Order: An order to buy or sell a security at a specific price or better.
- Stop Order: An order to buy or sell once the security reaches a certain price.
- Market Order: An order to buy or sell immediately at the best available current price.
FAQs
Q1: Can a GTC order be partially filled?
Q2: Are GTC orders available for all types of securities?
Q3: How can I cancel a GTC order?
Summary
A Good ‘Til Canceled (GTC) order is a flexible and convenient tool for traders and investors, allowing them to place orders that remain active until executed or explicitly canceled. It is particularly beneficial for long-term strategies and for those who cannot monitor the market continuously. However, different brokers may have varying policies regarding the duration of GTC orders, so it is essential to understand these before placing such orders.
References
- “Understanding GTC Orders,” Investopedia.
- “Trading Order Types Explained,” NASDAQ.
- “Brokerage Account Basics,” Charles Schwab.
This comprehensive entry on Good ‘Til Canceled (GTC) Orders will ensure that readers have a detailed understanding of what GTC orders are, how they function, and their applicability in modern trading strategies, along with practical examples and comparisons with other order types.
