What Is a Day Order in Trading?

Investors and traders who are new to the multilayered world of the stock market usually feel at a loss when learning about the many order types available. 

Here’s everything you need to know about day orders and how to use them.

Understanding Day Orders

Day orders duration is the time frame of how long a placed order will be active. They are a common duration type and they expire at the trading day’s end if the trade isn’t executed.

Day orders are one of many time in force types that dictate how long orders stay active before they’re canceled. With day orders, the order is canceled if it isn’t triggered before the end of the trading day.

Other common duration types placed on orders include “good ‘til canceled” (GTC) and “immediate or cancel” (IOC). GTC orders stay active until they’re canceled by the customer or a specific time frame has passed without execution, whereas IOC orders seek immediate fulfillment and any , unfulfilled part of the order gets canceled.

Pros of Using Day Orders

Since day orders are only valid during the trading day, they have a few unique benefits compared to other types of orders.

One benefit is the simplicity of day orders. Since they expire at the end of the day, an investor doesn’t need to devote time and energy to monitoring them or canceling open orders. This is beneficial because it helps reduce the risk of unintended executions. This automatic function means less work and fewer things to keep track of.

Day orders are also ideal for traders who have a strong grasp of short-term strategies and are equipped to take advantage of the rise and fall of same-day prices.

But perhaps one of the most significant benefits of using day orders is the increased focus they offer. When working with day orders, traders are able to maintain a more disciplined approach to their trading strategies. Since day orders expire at the end of the day, traders are less likely to fall prey to impulsive decisions that deviate from their trading plans.

Cons of Using Day Orders 

If you aren’t experienced enough, you may not have the skills necessary to leverage them properly. 

For example, if an inexperienced investor isn’t monitoring the prices of their orders at some point during the day, the day order may be fulfilled without them knowing.

These sorts of unforeseen actions can negatively impact the trader. If an investor makes a day order to sell and they go through an unexpected price drop, the order may be completed before the trader becomes aware of the situation. This would likely leave them with a big loss they didn’t see coming.

Therefore, it’s important to pay close attention to the market before and while placing your orders.

Other Types of Time in Force or Timing Restriction / Instructions

Day orders are just one duration type for orders. Here are some other common ones.

1. Immediate or Cancel Orders

IOC orders must experience immediate fulfillment either in full or in part. Otherwise, the unfulfilled part of the order is canceled. They can be divided into two categories: limit and market orders.

IOC limit orders are entered at definitive prices, which the trader specifies. These orders don’t have a specified price but are generally executed at the best available price. 

IOC orders are unique among orders duration types because they only have to be partially fulfilled, while other orders must be executed in full.

Traders use IOC orders as part of their trading strategies when submitting large orders to decrease the chances of the order being fulfilled at varying prices. IOC orders are also beneficial for traders who work with multiple stocks throughout a single market day because they help reduce the risk of forgetting to manually cancel an order.

2. Good Til Canceled Orders

GTC trading orders are orders to buy or sell securities that last until the order is either canceled or completed. While investors may want to leave their GTC orders open, stock brokers usually limit the length of time the GTC order can remain open.

GTC orders differ from IOC orders in that they remain active until the trader cancels them. They’re also a common alternative to day orders. While the latter expire at the end of the market day, GTC orders can stay active anywhere from 30 to 90 days after being placed.

GTC orders are another useful tool that can help traders manage their workloads and time because they don’t have to keep an eye on stock prices.

Order Types 

Here are the other four types of orders:

1. Limit Orders

Limit orders rely on predetermined prices to buy and sell stocks. For example, if a trader wants to buy a company’s stock but is restricted by a limit of $20.53, they’ll only purchase securities at or lower than $20.53.

On the other hand, if a trader wants to sell the same stock with a $20.53 limit, they can’t sell securities until their prices are equal to or higher than $20.53.

Limit orders are beneficial for a variety of reasons.

They give traders more control over the filled price of their securities, especially in times of market volatility, and are particularly useful when stocks are rising or falling at a rapid rate.  Please note that a limit order is not guaranteed to execute.  A limit order can only be filled if the stock’s market price reaches the limit price.  

2. Market Orders

Market orders are directives investors provide to brokers detailing how to buy or sell bonds, shares and other assets at the best prices available in the current market.

An example of a market order is when you click the “buy” and “sell” buttons on your online brokerage account. Clicking these buttons creates an order form on which you specify the stock symbol, how many shares you want to trade and whether you’re selling or buying.

This order form will also ask for the order  type, the default typically being market order . When, submitting that it’s a market order you’re willing to pay whatever the current  best available market price is.

3. All-or-None Orders 

All-or-none (AON) orders are a type of contingency order, which are buy or sell orders that are only executed when a trader’s specifically defined conditions are met.

The contingency condition placed upon AON orders is that they must be filled in their entirety for them to be executed — partial order fills aren’t accepted.

For example, if an investor were to place an AON order to purchase 100 shares of a company’s stock at $50 per share, the AON order wouldn’t be filled unless all 100 shares were purchased for $50 per share.

While AON orders can take longer than other orders to execute, they’re nonetheless beneficial when used strategically — especially when transacting with thinly traded securities.

4. Fill-or-Kill Orders

Fill-or-kill (FOK) orders are like a combination of AON and IOC orders. The defining condition on FOK orders is that the transaction must be executed immediately and in its entirety. Otherwise, it’s canceled.

These orders benefit traders who want a fill of the entire stock at the desired price in a timely manner. FOK orders usually only last a few seconds, minimizing any potential disruption to the price of the stock.

Using Different Orders to Your Advantage

As a trader, you should have a thorough understanding of the many different types of orders you have to choose from when buying or selling stocks. Knowing how, when and why to use these orders will broaden your range of investing strategies and allow you to diversify your methods to help achieve your investing goals. 

Frequently Asked Questions