Time in Force: A Helpful Tool for Active Traders

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Time in Force: A Helpful Tool for Active Traders. When an order is placed by a trader, it is either going to be executed or it will expire depending on the instructions given with the order. Instructions on how long an order sits as an active order before it is executed or expired are set by Time in force. To ensure trades get executed the way that the trader desires, it is very necessary to learn Time in Force.

Time in Force

What is ‘Time in Force’?

The moving prices of stocks that you can’t accurately predict where the stock will be when you want to execute a trade are affected by so many factors. When an order is placed without ‘Time in Force’ instructions could mean that your order sits, unfilled for a period longer than usual.

The time an order takes waiting for execution is limited by Time in force. Traders who trade in the day may not want their orders to remain open beyond the day since there is a possibility of the market changing overnight, making day orders one of the common orders.

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Time in force with market orders, limit orders, and stop-loss orders to manage price volatility over a designated time frame is used by traders. Time in Force are of six types and they include:

Day Order (DAY)

Good ‘Till Canceled (GTC)

Immediate or cancel (IOC)

Fill or Kill (FOK)

Market-On-Open (MOO)

We are going to look at each type of time-in-force instruction and its specifics.

●       Day Order (DAY)

A day order is also known as the ‘Time in force good for day’ order. Only for a given trading session does a day remain in effect. The NYSE’s opening hours are Mondays through Fridays from 9:30 am to 4 pm EST. Those trading hours are considered a session.

When an order is placed as a day order at 10:45 pm, the order will either get filled during the day or expire when the session closes at 4:00 pm.

It is a common time in force instruction because the current day’s price and market action is of much focus to the trader. Extending the order beyond the day could mean that what made the stock attractive today won’t make the stock attractive tomorrow. The default time in force for orders made through online brokerages is the Day orders.

Time in Force

●       Good ‘Til Canceled (GTC)

To know a Good ‘Til Canceled, the order will remain active until it is either fulfilled or canceled by the trader. The GTC order will really only stay in effect for a period determined by the brokerage, often 30-90 days while it suggests an indefinite period of time.

A GTC buy order may be used by the trader if they feel the price of a stock is going to drop to a price at which they want to buy it, or might even use a GTC sell order to set a price objective at which they are willing to1 sell if the stock reaches it. When done in such a way, the trader does not need to pay constant attention to the stock price until it reaches the objective price. For instance, if a stock ABC is trading at $40 per share, Philip feels the stock could drop to a floor of

$25 but he is not so sure of the timing. If he places a GTC order to buy the stock at $25, 5 days later, the stock drops to $25 and Phillip’s trade is executed.

●       Immediate or Cancel (IOC)

When a trader wants to get as much stock as he/she can for a specified price at that point, that’s what the Immediate or Cancel (IOC) means. If that can’t be fulfilled, it gets canceled.

For instance, John intends to buy a stock at $15 per share. If John can’t get the share at $15, he doesn’t want the stock. With John’s IOC order, his broker is able to fill 300 shares at $15. John gets the 300 shares and the rest of the order is canceled.

●       Fill or Kill (FOK)

The Fill or Kill is quite similar to an I’d order. The only difference is that the entire order must be filled or the entire order is canceled. It is more like an all-or-nothing order.

In the above instance of John wanting to buy a share of 300 of XYC stock, if he had placed this as a FOK order, he would either get the 300 shares at $15 or nothing. He will not get a partially filled order of 300 shares.

  • Market-On-Open (MOO)

The ‘market-on-open order as the name suggests is filled when the stock market opens at the opening price of the stock. This order is only good for the time it takes to get the market opening price, not any longer.

For instance, you want to sell your 50 shares of ABC stock when the market opens as you feel there will be a dip in the price throughout the day. You place a MOO order, when the market session opens at 9:30 am EST, your order is filled at the opening price of $20 per share.

Time in Force

  • Market-On-Close (MOC)

MOC is quite similar to a MOO with the only difference being that the trade is scheduled for the end of the day’s trading session at 4:00 pm. In wanting to lock gains and prevent fluctuations from occurring after market trading, investors go for MOC because the MOC gives the trader the time the stock is traded but not the price. Price is always subject to the market price at closing.

For instance, you intend to hold the trade for the day and not longer. You then obtain 1000 shares of XYZ stock at $20 per share with a FOK order earlier in the day. You then place a MOC order to sell the stock. At the close of trading business, your 1000 shares of XYZ stock are liquidated for the market price of $20.5 per share.

Tips for Using Time in Force Effectively;

  • Consider your goals: it is necessary to consider your goals for trade when choosing time in force. A GTC order can be a good option if you intend to open a position and hold it for an extended period of time. An IOC or FOk order may be a better option if you intend to buy or sell a security at a specific price.
  •  Monitor the Market: when using time in force, it is very important to monitor the conditions of the markets. A day order will be a good option especially if the market conditions are not stable than using a GTC order. An IOC or FOK order may be a better option than a day order if the market is illiquid.
  • Be Flexible: When using time in force, it is necessary to be flexible because the market can be flexible so in case the market conditions change, you will need to change your time in force accordingly.

With this tips, you can effectively and efficiently improve your trading results when you use time in force.

Conclusion

Time in force orders are an important way for investors to control the volatility of the market and this is done over time with equities. By using a time in force order, the parameters are set by the investor to know the stock can sell. This strategy can be used in alliance with limit or stop orders to further control the prices of stock at the time of trade.