A Complete Guide to Good ‘Till Canceled (GTC) Order

What is a Good 'Til Canceled (GTC) Order?

A Good 'Til Canceled (GTC) order is a type of stock market order that instructs a broker to buy or sell a security at a specified price or better, but unlike other order types, it remains open indefinitely until the order is executed, canceled by the trader, or reaches its expiration date. GTC orders are typically used when traders want to set up a trade at a specific price but are not concerned about the timing of its execution.

Further Read: Market Order vs Limit Order: Key Differences and More

How To Trade Using A GTC Order

As mentioned earlier, GTC orders can be either purchase or selling orders. To better explain their implementation here are two real-world examples for both scenarios.

GTC Buy Order

Imagine there's an investor, Investor A, who wants to buy shares of stock XYZ. Currently, stock XYZ is trading at $15 per share but doesn’t want to pay more than $12 for it.

The investor then enters a buy limit order for it at $12 with GTC instructions attached. If the stock price drops from $15 to $12, the GTC order will be triggered and executed.

This implies that the limit order will be executed at or near the stock's opening price. If the order is not executed on the same day, it will stay active until it is filled, or canceled either by you or your broker.

GTC Sell Order

Using the same values above that is stock XYZ trading at $15, Investor A initiates a sell limit order at $20 or above. If the stock price were to rise to $20, the GTC order would be activated and executed.

However, if the order wasn’t filled on that day, it would remain open until it is either filled or canceled by you or your broker.

It's essential to note that if the stock were to experience a gap beyond your limit price, your order would be executed at a more favorable price. For instance, if your limit price was set at $20, and the stock gaps up to open at $22, you would be filled at the higher price of $22.

If the above orders were made without implementing the GTC request when trading closed, they would expire, but with the GTC instruction in place, traders won’t have to place the same order every day if it doesn’t get filled.

The Risks of GTC Orders

Many exchanges, such as the NYSE and Nasdaq, have discontinued accepting GTC orders, including stop orders. They have decided that such orders are a risk to investors who may see their orders executed at an inopportune time due to temporary volatility in the market. However, it's worth noting that most brokerage firms continue to provide GTC and stop orders as part of their services, but they execute them internally.

GTC orders can be risky when the stock's price experiences wild swings in a single day. Sometimes, the price can shoot past your set limit and then suddenly return to normal. This can activate a sell-stop order if the stock's price drops. If it quickly goes back up, you might end up selling at a lower price and, if you want to re-enter the market, you may have to buy back at a higher price.

Key Features of GTC Orders

Time Limit: As the name suggests, a GTC order remains active until it is either executed, canceled by the trader, or reaches a predefined expiration date, which can vary depending on the broker. Some brokers may have a default expiration period (e.g., 30, 60, or 90 days), while others allow traders to specify their desired duration.

Execution at a Specified Price: With GTC orders, traders can specify the price at which they want their trade to be executed. This ensures that the trade will only go through if the market reaches the specified price or better.

Flexibility: GTC orders provide traders with flexibility as they can set their orders and then move away from their trading platform, knowing that their instructions will be executed when the market conditions meet their criteria.

Cancellation: Traders can cancel GTC orders at any time before they are executed, giving them full control over their trading strategy. This flexibility allows traders to adjust their orders in response to changing market conditions.

Advantages of Using GTC Orders

Reduced Monitoring: GTC orders are ideal for traders who cannot constantly monitor the market. These orders can be set and forgotten until the specified conditions are met, eliminating the need for continuous attention.

Price Precision: Traders can use GTC orders to set specific entry and exit points, ensuring that their trades are executed at their desired price levels, thus reducing the risk of slippage.

Long-Term Strategy: Investors with a long-term perspective can benefit from GTC orders by setting up buy or sell orders for stocks they believe will reach a specific price in the future.

Eliminating Emotional Trading: GTC orders help traders avoid impulsive decisions driven by emotions, as they stick to their predefined trading plan.

When to Use GTC Orders

Limit Orders: GTC orders are frequently used as limit orders, allowing traders to establish buy orders below the current market price or sell orders above it. This strategy guarantees that they can enter or exit positions at their preferred prices.

Stop-Loss and Take-Profit Orders: Traders can also use GTC orders for setting stop-loss and take-profit levels. This allows them to protect their investments and lock in profits automatically when certain price levels are reached.

Investing in Specific Stocks: Investors who want to buy specific stocks at a lower price can place GTC buy orders and wait for market conditions to become favorable.

Trading Around News Events: Traders who expect major news events that could affect stock prices can utilize GTC orders to secure positions at pre-set levels. This approach helps reduce the risk linked to unpredictable market reactions.

Also Read: News Trading: How to Trade the News?

Conclusion

Good 'Til Canceled (GTC) orders are a valuable tool in the arsenal of stock traders and investors. They offer flexibility, precision, and a level of automation that can enhance trading strategies. By understanding how GTC orders work and when to use them, traders can better control their investments and reduce the emotional aspects of trading.

However, it's important to remember that while GTC orders provide convenience, they are also responsible for periodically reviewing and potentially adjusting them to align with changing market conditions and trading goals.