Traders can use many types of orders to enter and exit positions in the stock market. One that is frequently used but not always well understood is the good til cancel order, or GTC for short.
GTC orders allow flexibility and convenience when planning trades, making them useful for many active traders.
In this article, we will explain what a GTC order is, when to use one, and the pros and cons of this order type.
Contents
Understanding Good Til Cancel Orders
A good til cancel order, sometimes called a “good-til-dropped” order, is a pending order that remains active and does not expire until executed or manually canceled by the trader.
This differs from a standard market or limit order, which will automatically expire at the end of the trading session if not filled.
GTC orders allow the convenience of entering an order once with the flexibility of having it continue to be active until the price and conditions of the order are met.
Traders do not have to continually re-enter their desired entry or exit order once it is set.
The order will remain active through both regular and extended hours (in most cases).
Some brokers do have time limits on active orders, but these limits are usually large, setting 60 or 90 days as an expiration if the order hasn’t been fired.
When To Use A Good Til Cancel Order
GTC orders are advantageous in several situations:
1. Planning entries and exits in advance – Traders can enter orders at their desired prices well beforehand. This removes the need to constantly scan all your charts for the perfect moment to enter. Send the order at your price limit, and you’ll be notified when it fills.
2. Working with large orders – Breaking up a large order into smaller GTC chunks can help manage the impact on the market. This isn’t particularly relevant to most retail traders in equities, but this can be very helpful in some of the more illiquid names or options contracts.
3. Limited trading availability – For traders who cannot monitor the market continuously throughout the day, GTC orders allow planning for entries and exits when you can be in front of the screen.
4. Risk management – Good til cancel orders are a very popular choice for stop-losses and take profits. They allow a trader to set and forget the management aspect of their trade. Once the stop-loss and take profit is set, you can look for another trade.
Advantages And Disadvantages Of GTC Orders
Good til cancel orders provide flexibility and convenience, as we have discussed above.
There are some additional benefits and drawbacks to these orders, though. Here are a few of the major benefits and major drawbacks.
Benefits:
1. Remain working beyond a single trading session – like discussed above, they stay active through multiple sessions
2. Help manage exits in advance – they let a trader set and forget their trade management orders
3. Convenient for traders with limited availability – they allow a trader to not have to constantly monitor their charts for entry signals.
Drawbacks:
1. Possibility for unexpected fills – If a trader forgets they have an open order and market conditions change, it’s possible to have an unwanted trade fire-off.
2. May execute at disadvantageous times – this is particularly important for Stop-losses and Take profits. It’s important to monitor for news and events that could fill an order that would otherwise not be filled.
3. Possibility to get gapped over – Many brokers will hold GTC client orders unless otherwise specified. If this is the case, it’s possible to have a price jump on your order if it is not sitting on an execution server and your platform is closed.
Using GTC orders requires a trading plan before you set up the order, but they remove the need for constant monitoring.
Adjustments may need to be made over time if market conditions shift.
But when used correctly, a good til cancel order can be a very useful tool for active stock and options traders.
Comparing Other Common Order Types
Good til cancel orders have pros and cons compared to other frequently used order types.
Here is a quick overview of how 3 of the other most common order types compare:
Market Order
A market order is executed at the current NBBO price as soon as it is received.
This guarantees immediate execution but does not allow any price control.
Advantages:
- Immediate execution
Disadvantages:
- No control over fill price
- Often significant slippage
Limit Order
A limit order is similar to a GTC order in that you can specify the price you want to execute at. However, limit orders are often only good for a session and expire at the closing bell.
Advantages:
- Control over fill price
Disadvantages:
- It won’t fill if your order price isn’t hit.
MOC Order
A MOC or Market on Close order is executed right at the closing bell of the stock exchanges. This can be displayed as being filled a few seconds before or up to several minutes after the bell.
Advantages:
- Guarantees you are out of a trade by the close of the market
Disadvantages:
- It is a market order, so price control is non-existent
- Lose out on any potential aftermarket movement
As you can see, the good til cancel order can be a powerful tool in your trading toolbox.
They allow you the flexibility of price control without having to worry about if you need to re-enter the trade the next day.
This same quality allows you to set and forget both opening and closing orders so that you do not need to constantly watch your screens.
We hope you enjoyed this article on good til cancel orders.
If you have any questions, please send an email or leave a comment below.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
