Good till canceled

What Is Good till canceled?

A good till canceled (GTC) order is a type of instruction given to a brokerage firm to buy or sell a security that remains active until it is either fully executed or explicitly canceled by the investor. This type of order falls under the broader category of order types in finance, which dictates how an investor's instructions are handled in the market. Unlike a day order, which automatically expires at the end of the trading day, a good till canceled order persists, allowing investors to set specific price targets without needing to re-enter the order daily. While the name implies indefinite duration, most brokerage firms and stock exchange platforms typically impose a maximum time limit for GTC orders, often ranging from 30 to 90 days, after which they automatically expire if not filled or manually renewed.⁹,⁸

History and Origin

The concept of standing orders that remain active across multiple trading sessions has been a feature of financial markets for many years, evolving alongside the mechanisms of trade. As stock markets became more sophisticated and electronic trading systems emerged, various "time in force" conditions for orders, including the good till canceled (GTC) order, became standardized. These order types provided greater flexibility for investors who did not wish to monitor market prices continuously.

However, the regulatory landscape for GTC orders has seen changes. For instance, the New York Stock Exchange (NYSE) and Nasdaq, among other exchanges, have at times moved to eliminate or modify their support for GTC orders to streamline rules and reduce complexity in their offerings. In December 2015, the NYSE filed with the Securities and Exchange Commission (SEC) a proposal to eliminate references to GTC or "Open Orders" in its rulebook, noting that a GTC Order is a limit order that remains in effect until executed or canceled.⁷,⁶ Such adjustments reflect ongoing efforts by exchanges to adapt to market structure changes and technological advancements.

Key Takeaways

• A good till canceled (GTC) order remains active until it is executed or explicitly canceled by the investor.
• It offers investors flexibility by not requiring daily re-entry of orders, especially for specific price targets.
• Despite its name, most brokerage firms impose a time limit, typically 30 to 90 days, after which the order expires.
• GTC orders are commonly used as limit orders or stop orders to manage desired entry or exit points for a security.
• The persistence of GTC orders can lead to unexpected executions if market conditions shift significantly over time.

Interpreting the Good till canceled

A good till canceled order indicates an investor's intent to buy or sell a security at a specified price, allowing that instruction to remain active over an extended period. The primary interpretation is that the investor believes the set price, whether a buy limit or a sell limit, is a favorable entry or exit point, and they are willing to wait for market conditions to meet that price.

For example, an investor placing a GTC buy limit order at a price below the current market price is signaling that they are only interested in acquiring the shares if they become cheaper. Conversely, a GTC sell limit order above the current price indicates a desire to sell only if the security appreciates to a certain level. This "patient" approach helps investors execute trades based on predetermined strategies rather than reacting to short-term price fluctuations. The duration of the GTC order, typically up to 90 days, allows for capture of price movements that may occur outside of a single trading day, providing a degree of flexibility in execution.

Hypothetical Example

Consider an investor, Sarah, who holds 100 shares of TechCorp (TCH) currently trading at $55 per share. Sarah believes TCH is a good long-term investment but is concerned about a potential short-term pullback. She wants to buy an additional 100 shares if the price drops to $50, but she doesn't want to constantly monitor the market.

Sarah places a good till canceled (GTC) buy limit order for 100 shares of TCH at $50. Her brokerage firm accepts the order and keeps it active.

• Week 1: TCH trades between $53 and $56. Sarah's GTC order remains unexecuted.
• Week 4: News affects the tech sector, and TCH's price drops to $49.50. Sarah's GTC buy limit order at $50 is triggered and executed at $50 or better, depending on the available liquidity, before the end of the trading day. Sarah successfully acquired the shares at her desired price point without daily intervention.

This example illustrates how a good till canceled order allows an investor to set a long-term price target and have the order remain active until that target is met or the order's validity period expires.

Practical Applications

Good till canceled (GTC) orders are widely used by investors across various strategies to manage their positions and capitalize on desired price levels over extended periods.

• Long-Term Investing: Investors who identify a target entry or exit price for a security but are not actively monitoring the market daily can use a GTC order. This allows them to set a price and let the order remain active, capturing potential trades without constant vigilance.
• Averaging Down/Up: A GTC buy limit order can be used to average down the cost basis of an existing position if the price declines, or a GTC sell limit order to average up if the price rises.
• Implementing Risk Management: GTC stop orders are a common application. A GTC stop-loss order can be placed below the current market price to limit potential losses on a long position if the market moves unfavorably. Conversely, a GTC stop-buy order can be placed above the current price to limit losses on a short position.
• Strategic Entry/Exit: For traders anticipating a specific market event or technical indicator to trigger a price movement, a GTC order allows them to set their desired execution price in advance, ensuring the trade occurs if the conditions are met.

It is important for investors to understand the implications of how brokerage firms handle customer orders. For instance, FINRA Rule 5320 generally prohibits a brokerage firm from trading a security for its own account ahead of a customer's order that would satisfy the customer's price, unless the customer order is immediately executed at the same or better price.⁵,⁴ This rule underscores the regulatory framework governing order handling and protection, which applies to GTC orders just as it does to other order types.

Limitations and Criticisms

Despite their convenience, good till canceled (GTC) orders have certain limitations and potential drawbacks that investors should consider:

• Market Volatility Risk: In periods of high market volatility, a GTC order might be executed at an undesirable time. For instance, a GTC buy limit order could be filled during a brief, sharp dip in price that quickly rebounds, leading to an immediate unrealized loss if the price continues to fall after the temporary rebound. Similarly, a GTC sell order might execute during a temporary rally, causing the investor to miss out on further capital appreciation if the price continues to rise.
• Forgotten Orders: Because GTC orders remain active for an extended period, there's a risk of "forgotten orders." An investor might place a GTC order and then forget about it, only for it to be executed weeks or months later under market conditions that are no longer relevant to their current investment strategy or portfolio management goals. Most brokers implement expiration dates (e.g., 30-90 days) precisely to mitigate this risk.
• Dividend Adjustments: For GTC limit orders on stocks, some brokerage firms automatically adjust the limit price downward on the ex-dividend payment date to account for the dividend. This adjustment prevents the order from being triggered by the purely mechanical drop in price due to the dividend. However, investors need to be aware of how their specific broker handles this to avoid unexpected price changes on their GTC orders.
• Liquidity Concerns: While GTC orders can wait for a price, there's no guarantee of liquidity at that price, especially for less actively traded securities. The order may be partially filled or not filled at all if insufficient shares are available at the specified price.

Regulatory bodies and exchanges occasionally review and modify rules surrounding GTC orders. For example, the NYSE, in a filing with the SEC, cited a desire to "streamline its rules and reduce complexity among its order type offerings" when proposing to eliminate certain references to GTC orders from its rulebook.³ Such changes highlight the ongoing evolution of order types in response to market efficiency and regulatory considerations.

Good till canceled vs. Day order

The primary distinction between a good till canceled (GTC) order and a day order lies in their "time in force" parameters—how long they remain active in the market.

While both GTC and day orders are types of instructions for buying or selling securities, the choice between them depends on an investor's time horizon, market monitoring capabilities, and overall trading strategy. A GTC order offers convenience for those setting patient price targets, while a day order provides more immediate control and forces daily reconsideration of market exposure.

FAQs

How long does a good till canceled order actually last?

While the name suggests it lasts indefinitely, most brokerage firms and exchanges place a maximum time limit on good till canceled (GTC) orders. This limit commonly ranges from 30 to 90 days. If the order is not filled or manually canceled within this period, it will automatically expire. Investors should check with their specific broker for their policy.,
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1### Can a GTC order be partially filled?

Yes, a good till canceled (GTC) order can be partially filled. If only a portion of the order can be executed at the specified price, that part will be filled, and the remaining unexecuted portion will stay active until it is filled, canceled, or expires. This is common for larger orders or in markets with lower liquidity.

What happens if a GTC order's price is "gapped" over?

If the price of a security "gaps" over a good till canceled (GTC) limit order between trading sessions (e.g., due to overnight news), the order may execute at the first available price beyond the limit. For a GTC buy limit order, it might fill at a price lower than the specified limit, and for a GTC sell limit order, it might fill at a higher price. This is generally considered more favorable for the investor who placed the order.

Is it possible to modify a GTC order after it's placed?

Yes, most brokerage firms allow investors to modify a good till canceled (GTC) order after it has been placed. You can typically change the price, quantity, or even the "time in force" setting of the order. However, modifying an order usually cancels the original order and replaces it with a new one, meaning it loses its original time priority in the market.

Are GTC orders suitable for all types of securities?

Good till canceled (GTC) orders are commonly used for publicly traded security like stocks and exchange-traded funds (ETFs). Their suitability for other assets, such as options or futures, depends on the specific exchange rules and the brokerage firm's capabilities, as these instruments may have different expiration cycles or liquidity characteristics.