Updated Mar 07, 2022
What is Good-till-cancelled order (GTC)?
What is Good-till-cancelled order?
A good-till-canceled (GTC) order is a form of buying or selling trade that orders the broker to keep the order open until the investor executes or cancels it. An investor may cancel GTC orders at any time. Otherwise, they will expire after a set amount of time, which is usually 60 or 180 days, depending on the brokerage firm.
GTC orders differ from other forms of trade orders in that they limit the timing of execution. A GTC order, in contrast to a day order, is immediately canceled after regular trading hours if it is not filled. A day order, like a GTC order, remains available until it is filled. Of course, there is no guarantee that the order will be filled.
GTC orders are the opposites of immediate-or-cancel (IOC) and fill-or-kill (FOK) orders. Both of these order types need at least a portion of the order to be executed quickly or not at all. If a FOK order is not filled immediately, it is canceled; an IOC order is partially filled before being canceled if the entire order cannot be filled.
Price-sensitive investors with longer time horizons typically employ GTC orders. Patience, both in timing a trade and in waiting for growth, is one of the most significant behavioral advantages an individual investor can demonstrate. GTC orders are unlikely to be used by day traders since they require immediate trade executions based on intraday market patterns. Their plans cannot afford the danger that waiting for offers.
Working of Good Until Cancelled Orders?
GTC orders relieve investors of the need to constantly monitor the stock price and allow them to buy and sell at certain price points for several weeks. A GTC, for example, can be programmed to buy a stock at a specified price point that differs from the current market price by analyzing the stock's price-to-earnings ratio, price-to-book ratio, and so on without constantly monitoring the stock. GTC orders are typically placed by investors who desire to buy at a lower price than the current trading level or sell at a higher price than the current trading level. GTC orders are sometimes placed if the market price of a share begins to fluctuate and there is doubt about its future. To avoid future losses, sell orders might be made at a slightly lower price.
Even when utilizing GTC orders, investors must actively monitor market conditions because the standing order may be executed even if an event occurs that causes the stock to move suddenly in one direction or the other. Several exchanges, including the NYSE and NASDAQ, do not accept GTC orders because they pose a danger to investors if the instructions are carried out at an inconvenient period. These are mainly caused by temporary market volatility and can result in a loss for the investor. The major danger of a GTC order is when a day of extraordinary volatility drives the price past the GTC order before swiftly reversing. When the price rises, the investor has just sold low and now faces the prospect of having to buy high to reclaim the position. Many brokerage houses, however, continue to provide GTC as a service and execute the orders internally.
The Fundamentals of Good 'Til Canceled (GTC)
GTC orders are an alternative today orders, which expire at the end of the trading day if not filled. GTC orders, despite their name, do not normally remain active indefinitely. To avoid a long-forgotten order being completed unexpectedly, most brokers set GTC orders to expire 30 to 90 days after investors submit them.
GTC orders allow investors who may not be continually monitoring stock prices to place buy or sell orders at certain price points and hold them for several weeks. The trade will be executed if the market price reaches the price of the GTC order before it expires. GTC orders can also be used as stop orders, which put sell orders below the market price and buy orders above the market price to limit losses.
Most GTC orders are executed at a specified or limited price. There are, however, exceptions. If the price per share fluctuates between trading days, skipping over the GTC order's limit price, the order will complete at a price more favorable to the investor who placed the order, i.e., at a higher rate for GTC sell orders and a lower rate for GTC purchase orders.
The Dangers of GTC Orders
GTC orders, including stop orders, are no longer accepted by several exchanges, including the NYSE and NASDAQ.
They have determined that such orders pose a danger to investors, who may have their orders executed at an inconvenient moment due to market volatility. Having said that, most brokerage firms still provide GTC and stop orders as part of their services, but they are executed internally.
The risk of a GTC order arises when a day of extraordinary volatility drives the price past the GTC order's limit price before quickly reversing. As the price of a stock falls due to volatility, a sell-stop order may be triggered. If the price instantly recovers, the investor has just sold low and now confronts the risk of having to buy high if the investor wants to reclaim the position.
Essentials to know
- When a GTT is triggered and an order is made on the exchange, it is only executed if the limit price order placed on the exchange is filled. To ensure execution, establish your limit price higher than the trigger price for purchase GTT orders (acts like a market order with the protection of your limit set) and lower than the sell trigger price for sell GTT orders. The more distant from the trigger is, the more likely execution is.
- Orders will only be initiated and placed during market hours.
- Orders placed at the exchange by GTTs that trigger will be filled only if you have enough cash for buys and enough stock in your Demat for sells at the time the order is put on the exchange.
- Our dealing desk does not handle GTT; you must place, cancel, and alter these transactions on your own.
- A maximum of 100 active GTTs can be placed on a single account at any given time.
- Sell GTT orders triggered on your stock holdings will fail because you must authorize the delivery of your shares using your CDSL TPIN. If you've submitted a POA, this isn't applicable.
A good-til-canceled order is ideal for investors who lack patience or do not wish to monitor the market's movements daily. This order type is in combination with stop and limit orders, then it allows you to precisely control your entry and exit prices and apply for the orders over a longer length of time than a day trade, eliminating the need to reenter orders daily. The brokerage business determines how long a GTC order can remain open.