Good Till Cancelled (GTC) - Definition

A Good Till Cancelled (GTC) order is a type of trade instruction used in stock and securities markets. It remains active until the order is executed or explicitly canceled by the investor.

Unlike day orders, which expire at the end of the trading day if not fulfilled, GTC orders allow investors to maintain their buy or sell orders over an extended period. This period typically ranges from 30 to 90 days, depending on the brokerage firm's policies.

How do GTC Orders Work?

GTC orders enable investors to set specific price points at which they wish to buy or sell a security. This removes the need for continuous monitoring. For example, an investor looking to purchase shares at a lower price can set a GTC buy order below the current market price.

If the market reaches this price before the order expires, the trade will execute automatically. Similarly, a GTC sell order can be placed above the current market price to secure profits when targets are met.

This mechanism helps reduce the day-to-day management of an investment portfolio. It allows investors to take advantage of favorable price movements without constant vigilance.

Practical Applications

GTC orders are particularly useful for investors with long-term strategies or specific entry and exit points for their investments. They are commonly used in:

• Limit Order: Setting buy or sell limits at desired price levels.
• Stop Order: Placing stop-loss or stop-buy orders to manage risk by triggering trades if the security reaches a certain price.
• Portfolio Management: Automating trades to maintain portfolio balance without frequent adjustments.

By automating these trades, GTC orders help investors adhere to their investment plans without being swayed by short-term market fluctuations.

Risks Associated with GTC Orders

While GTC orders offer convenience and strategic advantages, they also come with certain risks:

• Volatility: Sudden price swings can trigger order executions at unfavorable prices, leading to potential losses.
• Price Gapping: If a security's price moves significantly between trading days, a GTC order may execute at a less favorable price than initially set.
• Brokerage Limitations: Different brokers have varying expiration periods for GTC orders, which can affect the order’s longevity and execution.

Investors should carefully monitor their GTC orders and understand their brokerage’s specific policies to mitigate these risks effectively.

Example of a GTC Order

Consider an investor interested in purchasing shares of a company currently trading at $100 per share. Believing that the stock's value will decrease, the investor places a GTC buy order at $95. If the market price drops to $95 before the order expires, the trade will automatically execute. This secures the shares at the desired lower price without requiring the investor to manually place the order again.

Things to Remember

• GTC Orders Remain Active Until Executed or Canceled: Unlike day orders, GTC orders do not expire at the end of the trading day. They stay active until the specified conditions are met or the investor decides to cancel them. This provides flexibility for long-term investment strategies.
• Automation of Trades Through Set Price Points: GTC orders allow investors to specify exact prices for buying or selling securities. This automation ensures that trades are executed automatically when market conditions meet the predefined criteria. It eliminates the need for constant monitoring.
• Effective for Long-Term Portfolio Management: By using GTC orders, investors can maintain their desired portfolio balance without frequent manual adjustments. This is especially beneficial for those implementing long-term strategies or aiming to capitalize on specific market movements over extended periods.
• Be Aware of Associated Risks and Brokerage Policies: While GTC orders offer strategic advantages, they come with risks such as market volatility and price gapping. Additionally, different brokerage firms may have varying policies regarding the duration and management of GTC orders. Understanding these factors is crucial to effectively mitigate potential downsides.