What Are Day Orders and GTC Orders?
A day order is an order to buy or sell a stock that is good only during the trading day on which it is entered. A good-til-canceled order, known as a GTC order, is an order to buy or sell a stock that lasts until the order is completed or canceled.
Day and GTC are time parameters, known as time-in-force options. Market, limit and stop orders can include time mandates and other conditions. Unless an investor specifies a time frame for the expiration of an order, an order to buy or sell a stock is a day order.
A day order that does not execute during regular trading hours expires and will not automatically carry over into after-hours trading or the next regular trading day. A GTC order lasts until the order is completed or canceled, subject to the time limit of the brokerage firm.
Good-Til-Canceled Orders
A GTC order is an order to buy or sell a stock that lasts until the order is completed or canceled. Brokerage firms typically limit the length of time an investor can leave a GTC order open. The time limit may vary from broker to broker, and investors should contact their brokerage firms to determine what time limit applies to GTC orders.
An investor can set a cancellation date when placing a GTC order or cancel the order later. The brokerage firm keeps working a GTC order for a set amount of time unless the investor cancels it before then.
Rule 5330 of the Financial Industry Regulatory Authority, known as FINRA, names good 'til cancelled orders among the open orders that remain in effect for a definite or indefinite period until executed, cancelled or expired. Under paragraph (a) of the rule, a member holding an open order adjusts it on the day the security is quoted ex-dividend, ex-rights, ex-distribution, or ex-interest, subject to the exclusions in paragraph (e), as covered below.
Day Orders
A day order is good only during the trading day on which the order is entered. A day order that does not execute during regular trading hours expires, and it will not automatically carry over into after-hours trading or the next regular trading day.
A day order is the simplest time-in-force option. The brokerage firm can keep trying to fill a day order throughout the current trading day, and a day order expires at the end of the trading day if it is not executed. An investor who wants a day order to be active during extended trading hours must specify that, and extended trading hours may not be available for all order types.
An investor who places an order before or after normal trading hours should consider the possibility that news events or other factors might significantly impact the price of the security when the market opens again.
Price Terms Combined With a Time Limit
Day and GTC set how long an order stays in effect. The order type, whether market, limit or stop, sets the price terms that apply while the order is in effect.
A market order is an order to buy or sell a stock at the best available price. Generally, a market order is executed immediately, and the price at which it is executed is not guaranteed.
A limit order is an order to buy or sell a stock at a specific price or better. A limit order is not guaranteed to execute. A buy limit order can be executed only at or below the limit price, and a limit order helps ensure that an investor does not pay more than a pre-determined price for a stock.
A stop order is an order to buy or sell a security once the price of the security reaches a specified price, and it becomes a market order when the stop price is reached. A sell stop order can help limit losses if a stock an investor owns falls. The stop price is not the guaranteed execution price for a stop order, and the execution price can deviate significantly from the stop price. Short-term market fluctuations in a stock's price can activate a stop order.
A stop-limit order is a stop order designed to trigger the activation of a limit order. The stop price and the limit price for a stop-limit order do not have to be the same price, and a stop-limit order may not be executed if the stock's price moves away from the specified limit price.
Market orders typically receive the highest priority, followed by limit orders.
A day order with a limit price that is not reached during regular trading hours expires, and a GTC order with a limit price or stop price stays in effect until it is executed or canceled.
Extended-Hours Trading
Extended-hours trading is trading that occurs outside of regular trading hours. Brokerage firms may accept only limit orders in extended-hours trading, and a limit order is executed only at the limit price or better.
An investor should check whether orders not executed during extended-hours trading are canceled or are automatically entered when regular trading hours begin, and whether orders placed during regular trading hours carry over to extended hours.
Extended-hours trading carries risks. There is generally less trading interest, which may make trades harder to execute. For stocks with limited trading activity, investors may find greater price fluctuations. Extended-hours trading systems are not linked together. The same stock may show different prices on different systems. Lower trading interest generally results in wider spreads between the bid and ask prices for a stock or no quotes at all. Many of the extended-hours traders are professional traders who generally have access to more information than individual investors. Companies may announce important news or financial information outside of regular trading hours.
Other Time Parameters
An immediate-or-cancel order, known as an IOC order, fills as much of the order as possible right away. If there are not enough shares available immediately at the right price, the remainder of the order is canceled. Any portion of an IOC order that cannot be filled immediately is canceled.
A fill-or-kill order, known as an FOK order, is executed in its entirety immediately or not at all.
An all-or-none order, known as an AON order, prevents partial filling, but it does not have the immediacy of an FOK order. An AON order that cannot be executed immediately remains active until it is executed or canceled.
Market-on-open and market-on-close orders are executed as close as possible to the beginning or end of regular trading hours.
Open Order Adjustments: Rule 5330
Rule 5330 is headed Adjustment of Orders. Under Rule 5330(a), a member holding an open order from a customer or another broker-dealer shall, before executing or permitting the order to be executed, reduce, increase, or adjust the price, the number of shares, or both of the order by an amount equal to the dividend, payment, or distribution on the day that the security is quoted ex-dividend, ex-rights, ex-distribution, or ex-interest, except where a cash dividend or distribution is less than one cent.
Rule 5330(d) defines the term open order as an order to buy or an open stop order to sell, including but not limited to good 'til cancelled, limit or stop limit orders which remain in effect for a definite or indefinite period until executed, cancelled or expired.
The rule sets a separate method for each kind of distribution. Under Rule 5330(a)(1), for a cash dividend, unless the order is marked Do Not Reduce, open order prices are first reduced by the dollar amount of the dividend, and the resulting price is then rounded down to the next lower minimum quotation variation. The reduction does not apply to an order marked Do Not Reduce.
Under Rule 5330(a)(2), for stock dividends and stock splits, the dollar value of the stock dividend or split is first rounded up to the next higher minimum quotation variation, and the resulting amount is subtracted from the price of the order. Unless the order is marked Do Not Increase, the size of the order is increased by multiplying the size of the original order by the numerator of the ratio of the dividend or split, dividing the result by the denominator of the ratio, and rounding the result to the next lowest share.
Under Rule 5330(a)(3), for dividends payable in either cash or securities at the option of the stockholder, open order prices are reduced by the dollar value of the cash or securities, whichever is greater. If the stockholder opts to receive securities, the size of the order is increased under the formula in paragraph (a)(2). Under Rule 5330(a)(4), for a combined cash dividend and stock split or dividend, the cash portion is calculated first and the stock portion after it.
Under Rule 5330(a)(5), if the value of the distribution cannot be determined, the member shall not adjust, execute, or permit an open order to be executed without reconfirming the order with the customer.
Under Rule 5330(b), when a pending order involves a security that is the subject of a reverse split, the order, buy or sell, shall be cancelled. Under Rule 5330(c), when a pending order involves a security that is the subject of a stock split but is not otherwise required to be adjusted under the rule, a member shall promptly notify the customer of the stock split.
Under Rule 5330(e), paragraph (a) does not apply to orders governed by the rules of a registered national securities exchange, open stop orders to buy, open sell orders, or orders for the purchase or sale of securities where the issuer of the securities has not reported a dividend, payment, or distribution pursuant to Rule 10b-17 under the Securities Exchange Act of 1934.
Held Customer Orders: Rule 5320
Rule 5320 is headed Prohibition Against Trading Ahead of Customer Orders. Under Rule 5320(a), except as provided in the rule, a member that accepts and holds an order in an equity security from its own customer or a customer of another broker-dealer without immediately executing the order is prohibited from trading that security on the same side of the market for its own account at a price that would satisfy the customer order, unless it immediately thereafter executes the customer order up to the size and at the same or better price at which it traded for its own account.
Under Rule 5320(b), a member must have a written methodology in place governing the execution and priority of all pending orders that is consistent with the requirements of Rule 5320 and Rule 5310. A member also must ensure that this methodology is consistently applied.
Order Records: Rule 17a-3
Rule 17a-3 under the Securities Exchange Act of 1934 is headed Records to be made by certain exchange members, brokers and dealers. Rule 17a-3(a)(6)(i) requires a memorandum of each brokerage order, and of any other instruction, given or received for the purchase or sale of a security, except for the purchase or sale of a security-based swap, whether executed or unexecuted. The memorandum must show the terms and conditions of the order or instructions and of any modification or cancellation of them, the account for which entered, the time the order was received, the time of entry, the price at which executed, the identity of each associated person, if any, responsible for the account, and, to the extent feasible, the time of execution or cancellation. The memorandum must also show the identity of any other person who entered or accepted the order on behalf of the customer or, if a customer entered the order on an electronic system, a notation of that entry.
Under Rule 17a-3(a)(6)(i), an order entered pursuant to the exercise of discretionary authority must be so designated. The term time of entry means the time when the member, broker or dealer transmits the order or instruction for execution.
Exam Relevance
The Securities Industry Essentials examination content outline lists, under Topic 3.1.1, Orders and Strategies, the bullet Types of orders, with market, stop, limit, good-til-canceled (GTC), discretionary versus non-discretionary, and solicited versus unsolicited named in parentheses. Topic 3.1 is headed Trading, Settlement and Corporate Actions, within Section 3, Understanding Trading, Customer Accounts and Prohibited Activities. Topic 3.1.4, Corporate Actions, lists Adjustments to securities subject to corporate actions. The list of rules that follows Topic 3.3.3 includes FINRA Rule 5320, Prohibition Against Trading Ahead of Customer Orders. Candidates should check the current outline before the examination.
Common Misunderstandings
A GTC order stays open forever. A GTC order lasts until it is completed or canceled, and brokerage firms typically limit the length of time an investor can leave a GTC order open.
A day order carries over to the next trading day if it does not execute. A day order that does not execute during regular trading hours expires and will not automatically carry over into after-hours trading or the next regular trading day.
Every order stays open until the investor cancels it. Unless an investor specifies a time frame for the expiration of an order, an order to buy or sell a stock is a day order.
A day order is active in extended hours automatically. An investor who wants a day order to be active during extended trading hours must specify that.
A GTC order keeps its original price after a cash dividend. Under Rule 5330(a)(1), for an open order covered by the rule, unless the order is marked Do Not Reduce, open order prices are reduced by the dollar amount of the dividend.
Every open order is adjusted on the ex-date. Rule 5330(e) excludes orders governed by the rules of a registered national securities exchange, open stop orders to buy, open sell orders, and orders for securities whose issuer has not reported a distribution under Rule 10b-17.
A firm holding a customer's open order may trade ahead of it for its own account. Under Rule 5320(a), except as provided in the rule, a member that accepts and holds an order in an equity security without immediately executing it is prohibited from trading that security on the same side of the market for its own account at a price that would satisfy the customer order, unless it immediately thereafter executes the customer order up to the size and at the same or better price at which it traded for its own account.
A GTC stop order executes at the stop price. The stop price is not the guaranteed execution price for a stop order.
A GTC limit order is certain to execute eventually. A limit order is not guaranteed to execute.
Key Points to Retain
A day order is good only during the trading day on which it is entered, and it will not automatically carry over into after-hours trading or the next regular trading day.
Unless an investor specifies a time frame for the expiration of an order, the order is a day order.
A GTC order lasts until the order is completed or canceled, and brokerage firms typically limit the length of time an investor can leave a GTC order open.
Day and GTC are time-in-force options, and market, limit and stop orders can include time mandates and other conditions.
A stop order becomes a market order when the stop price is reached, and a limit order is not guaranteed to execute.
An investor who wants a day order to be active during extended trading hours must specify that.
Under Rule 5330, a member holding an open order adjusts the price or number of shares of the order on the day the security is quoted ex-dividend, ex-rights, ex-distribution, or ex-interest, unless the order is excluded.
Rule 5330(d) names good 'til cancelled orders among open orders, and Rule 5330(a)(1) reduces the prices of open orders covered by the rule by the dollar amount of a cash dividend unless the order is marked Do Not Reduce.
Rule 5320(a) prohibits, except as provided in the rule, a member that holds a customer order in an equity security without immediately executing it from trading on the same side of the market for its own account at a price that would satisfy the customer order, unless it immediately thereafter executes the customer order up to the size and at the same or better price at which it traded for its own account.
Rule 17a-3(a)(6)(i) requires a memorandum of each brokerage order showing its terms and conditions and any modification or cancellation.
