Definition of Good ‘Til Canceled (GTC)
A Good ‘Til Canceled (GTC) order is an instruction to a broker to buy or sell a stock at a specified price that remains in effect until the order is either executed or explicitly canceled by the investor. Unlike day orders that expire at the end of the trading day, GTC orders can remain active for a set period, typically ranging from 30 to 90 days, depending on brokerage policies.
How Good ‘Til Canceled (GTC) Orders Work
GTC orders enable traders and investors to attempt to execute buy or sell actions at specific prices without the need to continuously monitor market fluctuations. This type of order is particularly useful for those aiming to achieve entry or exit points at prices they deem optimal based on their long-term investment strategies or market analysis.
Execution Considerations
The execution of a GTC order depends largely on market conditions. If the stock price reaches the specified limit price, the order will be filled. However, if the market price gaps beyond the limit price due to significant news events or market movements, the order may execute at a more favorable price than initially anticipated.
Potential Risks of GTC Orders
While GTC orders offer convenience, they carry inherent risks. Their long duration can inadvertently expose investors to unexpected market volatility, resulting in trades at undesirable times. Moreover, due to the eternal “vigilance” of the GTC order, there’s a risk of forgetfulness where an investor fails to cancel an order no longer aligned with their investment strategy.
Impact of Market Volatility
A substantial risk arises during periods of extreme market volatility, where prices can briefly spike or drop. Such movements may trigger the execution of GTC orders at unfortunate moments, potentially resulting in undesirable trade outcomes, such as buying high or selling low unexpectedly.
Example of a GTC Order in Action
Consider an investor looking to purchase a stock currently trading at $100. The investor places a GTC order to buy if the price drops to $95. If the stock price hits or falls below $95 before the order expires or is canceled, the order will be executed, potentially enabling the investor to achieve a lower purchase price than the ongoing market rates.
Related Terms
- Day Order: An order that expires if not filled by the close of trading on the day it was placed.
- Limit Order: An order to buy or sell a security at a specific price or better.
- Stop Order: An order to sell a security when it reaches a particular price.
- Market Volatility: Refers to the rate at which the price of a security increases or decreases for a given set of returns.
Suggested Further Reading
- A Beginner’s Guide to Day Trading Online by Toni Turner
- Trading for a Living: Psychology, Trading Tactics, Money Management by Alexander Elder
By understanding and judiciously using GTC orders, investors can enhance their trading strategies while managing potential risks associated with long-standing open orders.
