Good til canceled order gtc

A good til canceled order (GTC) is a type of order placed with a broker-dealer to buy or sell a security that remains active until it is executed or until the investor cancels it. Belonging to the broader category of order types in securities trading, a good til canceled order offers a way for traders to set a price target for a stock without needing to re-enter the order daily. Unlike a day order, which automatically expires at the end of the trading day if not filled, a good til canceled order stays open across multiple trading sessions, providing persistence in the market.

History and Origin

The concept of standing orders that persist beyond a single trading day has been an integral part of stock exchange operations for decades, evolving with market technology. Early trading systems relied on manual processes where orders had to be renewed or re-entered daily. As electronic trading systems developed, the ability to store and maintain orders for extended periods became feasible, leading to the formalization of order types like the good til canceled order. Major exchanges, including NASDAQ, have codified various order types and modifiers within their rules to standardize how these instructions are handled by trading systems. For instance, the functionality and modifications of how such orders are processed are often detailed in exchange regulations, providing clarity and transparency for market participants⁵, ⁶.

Key Takeaways

• A good til canceled order remains active until filled or explicitly canceled by the investor.
• It offers a strategic advantage for investors aiming for specific price levels over extended periods.
• GTC orders reduce the need for daily order re-entry, saving time and effort.
• They are commonly used with limit orders and stop orders.
• While persistent, a good til canceled order may be subject to periodic expiration policies by brokers, often requiring renewal after 30, 60, or 90 days.

Interpreting the Good Til Canceled Order

A good til canceled order is interpreted as a standing instruction to a broker-dealer to execute a trade when specific price conditions are met, regardless of how long it takes. This order type is particularly useful for investors who have a long-term trading strategy or are attempting to buy or sell at a specific price point that the market may not reach in a single day. For example, an investor might place a GTC limit order to buy a stock at a price significantly below its current market value, anticipating a future dip. The broker's system will hold this good til canceled order, continuously checking for the specified price. This persistence removes the need for the investor to monitor the market constantly or re-enter the order daily, offering convenience and the potential to capture favorable prices that might occur during periods of market volatility when the investor is not actively watching.

Hypothetical Example

Imagine an investor, Sarah, wants to purchase shares of XYZ Corp. She believes the stock, currently trading at $50 per share, is overvalued and would be a good buy if it drops to $45. Instead of placing a day order for $45 each morning, which would expire at the market close, Sarah places a good til canceled order.

1. Order Placement: Sarah logs into her brokerage account and places a GTC limit order to buy 100 shares of XYZ Corp. at $45.00.
2. Order Persistence: The brokerage system holds this good til canceled order.
3. Market Movement: For the next few weeks, XYZ Corp. trades between $48 and $52. Sarah's order remains open but unfilled.
4. Execution: On a volatile trading day, XYZ Corp. suddenly drops to $44.50. As soon as the price hits or falls below Sarah's specified limit of $45.00, her good til canceled order is triggered, and 100 shares are purchased at $45.00 (or better, if available), assuming sufficient liquidity.

This example illustrates how the GTC order allows Sarah to execute her desired trade without active daily monitoring, capturing a price point that might have been missed with a day order.

Practical Applications

Good til canceled orders find widespread use across various aspects of financial markets and personal investing. They are commonly employed by retail and institutional investors for executing trading strategies that require patience and precision.

• Targeting Specific Prices: Investors use GTC limit orders to buy a stock at a lower price than its current market value or sell at a higher price. This is particularly useful for those who have a defined price target and are willing to wait for the market to reach that level.
• Risk Management: GTC stop orders (including stop-limit orders) are crucial for risk management. They allow investors to set a price at which a stock should be sold to limit potential losses if the market moves unfavorably. Since these orders persist, they provide continuous protection without needing daily re-entry.
• Averaging Down/Up: Traders might use GTC orders to average down their cost basis by placing multiple buy limit orders at progressively lower prices or average up by placing sell limit orders at higher prices.
• Compliance with Best Execution: Broker-dealers have regulatory obligations, such as FINRA Rule 5310, which requires them to use "reasonable diligence to ascertain the best market" for customer orders and to execute them as favorably as possible under prevailing market conditions³, ⁴. This "best execution" principle applies to all order types, including GTC orders, ensuring that even long-standing orders are handled with due care when their conditions are met².
• Capturing Opportunities during Market Disruptions: During unforeseen market events or technical glitches, rapid price movements can occur. A persistent good til canceled order can potentially be triggered during such events if the price criteria are met. For instance, a technical issue at an exchange can lead to unusual price swings, highlighting the importance of how order types are handled electronically¹.

Limitations and Criticisms

Despite their utility, good til canceled orders have certain limitations and potential drawbacks that investors should consider.

• Forgetting Active Orders: The primary risk is that an investor might forget about an active good til canceled order, especially if it was placed long ago or during a period of different market conditions. A sudden, unexpected price movement could trigger an old order, leading to an unwanted trade or a trade at an undesirable price.
• Market Condition Changes: Over time, the underlying fundamentals of a security or broader market conditions might change significantly. An investor's original price target might become irrelevant or even detrimental given new information, but the GTC order will still attempt to execute at that old price.
• Brokerage Policies: While designed to be "good til canceled," many broker-dealer firms implement their own policies regarding the maximum duration for which a GTC order remains active. This is often 30, 60, or 90 days, after which the order automatically expires if not manually renewed. Investors must be aware of their specific broker's policy to avoid unexpected cancellations.
• Execution Risk: While a good til canceled order specifies a price, actual execution is not guaranteed, especially for limit orders if the market moves past the specified price quickly without filling the order. Similarly, for stop-limit orders, if the stop price is hit but the limit price is not met, the order may not execute, leaving the investor exposed. This is particularly relevant in illiquid markets or during volatile periods. A Federal Reserve Bank of San Francisco economic letter discusses how different order types contribute to market liquidity and the nuances of their execution.

Good Til Canceled Order vs. Day Order

The key distinction between a good til canceled order and a day order lies in their duration.

The choice between a good til canceled order and a day order depends on an investor's trading strategy, time horizon, and willingness to manage their orders. GTC orders offer convenience for patient investors, while day orders are suitable for those seeking immediate action within a single trading session.

FAQs

1. How long does a good til canceled order last?

A good til canceled order technically lasts indefinitely until it is either filled by a trade or the investor manually cancels it. However, most broker-dealer firms impose their own expiration policies, typically canceling GTC orders after 30, 60, or 90 days. Investors should always check their specific broker's rules.

2. Can I modify a good til canceled order?

Yes, most brokerage platforms allow investors to modify an active good til canceled order. This typically involves changing the price, quantity, or even the order type itself. When an order is modified, it is essentially canceled and re-entered, and its "life" often restarts from the modification date according to the broker's GTC expiration policy.

3. Are good til canceled orders guaranteed to be filled?

No, a good til canceled order is not guaranteed to be filled. Like any other order type, its execution depends on market conditions. For a GTC limit order, the specified price must be reached in the market for the trade to occur. If the market never touches that price, the order will remain open until it expires or is canceled.

4. What happens if I forget about a GTC order?

If an investor forgets about a good til canceled order, it could potentially be filled at a later date, even if market conditions have changed significantly since the order was placed. This might lead to an unintended purchase or sale, or a trade at a price that is no longer desirable. Regular review of open orders is a good practice for all investors.