Time In Force is the amount of time spent during the execution of an order before it expires. It also refers to a special directive implemented by traders or investors when placing a trade for stocks or other financial instruments.
As a result, it gives the trader or investor a mechanism of controlling time for a particular trade.
In most markets, it is common to find single price auctions which occur at the beginning and end of regular trading. They are single priced because when it comes to the transaction of all orders, they must be done at the same price.
For orders specified on the opening or closing of the market, they are entered in an auction which has no effect.
When combined with price directives, it results in market on close, limit on close, market on open and limit on open.
Time in Force Options
i. Day Order
This is an order to buy or sell an asset which expires automatically when execution has not been carried out during the specific day of execution. Basically, when a day order is not filled, it’s cancelled. Modern trading platforms have day orders as default order duration.
This means that it’s placed as the default time frame for all buy or sell orders. One thing you need to know is that orders are good only for the current trading day.
They are cancelled automatically at the end of the trading day if they have not been filled. Investors and traders use day orders to place an order for a stock at a specific price point eliminating the need for the trader to monitor it until execution.
ii. Fill or Kill order
This refers to a Time in Force option used in stock trading and helps to instruct brokerage firms to execute transactions immediately and completely or none at all. It is used by active traders and usually designed for large quantities of stock.
This order must be filled or cancelled in its entirety. The purpose of a Fill or Kill order is to make sure that traders are able to enter a position at a desired price.
Without this order, it would take a lot of time to execute large orders completely. Basically, the fill or kill order is a tool for buyers or sellers to place all possible orders and cancel the rest.
iii. Immediate or cancel order
This refers to an order to buy or sell securities that is normally executed immediately. If any orders are not immediately filled, they are cancelled.
As one of the many duration orders, traders and investors use IOC order to specify the duration a stock should remain active and at the same time when it’s supposed to be cancelled.
It is a common practice among investors to place different security trades that indicate a minimum or maximum price of a sell order before its filled.
iv. Good ‘Til Canceled
This is a type of Time in Force order that is placed by investors to purchase or sell securities at a particular price which remains active until it’s rescinded by the investor or executed.
It offers an alternative to setting different day orders that expires after the end of every trading day. The tool eliminates the chances of orders being left open. This poses a huge risk. That is why GTC orders are set to expire after 30 to 90 days.
v. Good ‘Til Date
Good ‘Til Date refers to an order that remains working in the system and marketplace until it executes. It may also execute until the close of the market on a specified date.
To place the order, select Good ‘Til Date option from the Time in Force options. This should be followed by the addition of an execution date and time. It is important to note that if you don’t set a specific time zone, the system will use the current time zone set on your computer.
Final Thoughts
To be successful in trading, you need to implement smart strategies. Time In Force is composed of a set of instructions that will surely help you be successful in trading.
By selecting one of its many options, traders don’t have to monitor trades all day long. The trades will execute or cancel according to the time and date specified. As a result, investors and traders alike are assured of success.