Good this month order gtm

What Is a Good-this-Month Order (GTM)?

A Good-this-Month (GTM) order is a type of instruction given to a broker-dealer to buy or sell a security that remains active until the end of the current calendar month, unless it is filled or canceled beforehand. This specific time-in-force instruction falls under the broader category of securities trading and order types. Unlike a day order, which expires at the close of the trading day, a GTM order offers extended validity, allowing investors to set specific price targets and wait for market conditions to meet them over a longer period.

History and Origin

The concept of order validity periods, such as "Good-this-Month," evolved as trading practices became more sophisticated, moving beyond simple market orders to include conditional instructions. Early stock markets primarily dealt with floor trading where orders were typically valid only for the trading session in which they were placed. As electronic trading systems emerged, enabling continuous market access and automated execution, the need for various time-in-force designations became apparent. This allowed investors to manage their trades more effectively without constantly monitoring the market. Regulatory bodies, such as the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC), have established rules for how broker-dealers handle customer orders and their various conditions, ensuring fair and prompt execution⁷, ⁸. Over time, brokers began offering specific "Good-Til-Date" variations, where "Good-this-Month" is a practical example, setting the expiration to the end of the calendar month to simplify order management for clients.

Key Takeaways

• A Good-this-Month (GTM) order remains active until the end of the current calendar month, or until it's executed or canceled.
• GTM orders are a specific type of "Good-Til-Date" (GTD) order, offering more flexibility than day orders.
• They allow investors to target specific prices without requiring daily re-entry of the order.
• The actual expiration time within the last day of the month can vary by broker-dealer.
• GTM orders can be subject to automatic cancellation under certain corporate actions or if the brokerage imposes stricter time limits.

Interpreting the Good-this-Month Order (GTM)

A Good-this-Month (GTM) order indicates a medium-term trading horizon for an investor, signaling that they are willing to wait for a desired price point within the current calendar month. When placing a GTM limit order, an investor effectively sets a maximum buy price or a minimum sell price that they deem acceptable. If the security's price reaches that level at any point before the end of the month, the order will be executed. This contrasts with short-term strategies tied to daily fluctuations or immediate liquidity needs.

For example, if an investor places a GTM buy order for a stock at $50 on July 5th, they are indicating that they are prepared to purchase the stock at $50 or lower at any time between July 5th and the end of trading on July 31st. This approach supports portfolio management strategies where an investor believes a stock will reach a certain valuation within a monthly timeframe, but they cannot monitor the market continuously. Understanding the implications of GTM orders is crucial for investors to align their trading instructions with their investment objectives.

Hypothetical Example

Consider an investor, Sarah, who wishes to purchase shares of XYZ Corp. She believes that the stock, currently trading at $105 per share, will temporarily dip to $100 sometime within the month of August due to an anticipated market correction. Sarah wants to acquire 100 shares at this lower price but doesn't want to monitor the market every day.

On August 1st, Sarah places a GTM limit order to buy 100 shares of XYZ Corp. at $100.

• August 1st - August 14th: The stock price fluctuates between $102 and $106. Sarah's GTM order remains active but unexecuted.
• August 15th: XYZ Corp.'s stock price drops to $99.50 during a mid-day trading session. Sarah's GTM order to buy at $100 or better is triggered and executed at $99.50.
• Outcome: Sarah successfully purchased 100 shares at a price below her specified limit, without needing to be actively watching the market at the moment of the price drop. Her GTM order served its purpose by remaining active until her target price was met. If the price had not reached $100 by the end of August 31st, her GTM order would have expired automatically.

Practical Applications

Good-this-Month (GTM) orders find practical application in several aspects of investing and trading, primarily in enhancing flexibility and reducing the need for constant market oversight.

• Strategic Accumulation/Distribution: Investors can use GTM orders to accumulate shares of a security at desired lower prices over a month or to sell shares at target higher prices. This is especially useful for long-term investors or those engaging in dollar-cost averaging who are not concerned with immediate execution and can wait for favorable price movements.
• Setting Target Prices: GTM orders allow investors to set specific buy or sell targets for a security, providing a defined timeframe for potential entry or exit points. For instance, an investor might use a GTM stop order to protect against significant losses within a monthly period.
• Automating Trades: For individuals who cannot monitor market fluctuations throughout the trading day or week, GTM orders automate the process of attempting to execute a trade at a specific price. This can be particularly beneficial in markets experiencing moderate market volatility where prices might briefly hit desired levels before rebounding.
• Risk Management Frameworks: Although not a direct risk mitigation tool, the time-in-force aspect of GTM orders can be incorporated into broader risk management strategies by limiting the duration for which an order is exposed to market conditions. Firms handling these orders adhere to regulatory compliance guidelines concerning order routing and best execution, ensuring orders are handled in the customer's best interest⁶. The Autorité des marchés financiers (AMF) notes that investors should pay attention to the validity period of their orders, as it impacts execution likelihood.
  ⁵

Limitations and Criticisms

While Good-this-Month (GTM) orders offer convenience, they come with certain limitations and potential criticisms that investors should consider. A primary concern is the risk of an order executing at an "inopportune moment" due to temporary market conditions. For example, a sudden, brief dip in a stock's price might trigger a GTM buy order, only for the price to fall further or recover quickly, leaving the investor with an undesirable entry point or a missed opportunity for a better price later in the month. This can occur especially if the brief price movement is a result of low liquidity or a wide bid-ask spread.

Moreover, GTM orders are subject to the policies of individual broker-dealers and stock exchange rules. While the "Good-this-Month" designation implies validity until the end of the calendar month, some brokerages might impose shorter maximum durations or automatically cancel orders under specific circumstances, such as corporate actions like stock splits or dividend payments. Investors must verify their broker's specific rules regarding GTM orders to avoid unexpected expirations. The Securities and Exchange Commission (SEC) provides guidance on various order types and encourages investors to understand how their brokerage firm handles such orders, especially during volatile conditions. ³, ⁴This highlights the importance of investor diligence for adequate investor protection.

Good-this-Month Order (GTM) vs. Good 'til Canceled Order (GTC)

The Good-this-Month (GTM) order and the Good 'til Canceled order (GTC) are both time-in-force instructions that allow an order to remain active beyond a single trading day. However, their primary distinction lies in their expiration period.

A GTM order is explicitly set to expire at the end of the current calendar month. If an order is placed on July 10th with a GTM instruction, it will remain active until the close of trading on July 31st (or the last trading day of July). This provides a defined, relatively short-term horizon for the order's validity.

In contrast, a GTC order is designed to remain active indefinitely until it is either executed or manually canceled by the investor. While theoretically "good 'til canceled," most brokerages and exchanges impose a maximum time limit on GTC orders, typically ranging from 30 to 90 days, after which they automatically expire if unexecuted. ¹, ²This longer, though not truly indefinite, duration makes GTC orders suitable for investors with longer-term price targets who are willing to wait several weeks or months for market conditions to align.

The choice between a GTM and a GTC order depends on an investor's specific trading strategy and timeframe. GTM offers a more precise, monthly-bounded window, while GTC provides a broader, more flexible duration, subject to brokerage limitations.

FAQs

How long does a Good-this-Month (GTM) order last?

A Good-this-Month (GTM) order lasts until the end of the current calendar month in which it was placed, unless it is filled or canceled by the investor before that time. For example, if you place a GTM order on October 5th, it will remain active until the close of the market on October 31st (or the last trading day of October).

Can I cancel a GTM order before the month ends?

Yes, an investor can cancel a Good-this-Month (GTM) order at any time before it is fully executed. If market conditions change or your investment strategy shifts, you have the flexibility to withdraw the order.

What happens if my GTM order is only partially filled?

If a Good-this-Month (GTM) order is partially filled, the remaining unexecuted portion of the order will typically stay active until the end of the month, or until it is filled or canceled. This depends on your broker's specific policies regarding partial execution for time-in-force orders.

Are GTM orders available for all types of securities?

Good-this-Month (GTM) orders are generally available for common securities like stocks and exchange-traded funds (ETFs). However, the availability of specific order types, including GTM, can vary by broker-dealer and the specific market or stock exchange where the security trades. Always check with your brokerage firm about the supported order types and their associated conditions.