Orders are day orders by default if there is no specification

Author: Forex Live | Category: Education

A better understanding on day orders

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What is a day order?

A day order is a trader's instruction to a broker on how the asset should be bought or sold. In a day order setup, there should be an execution if the investment reaches a specified price at any time of the trading day that the trader made the order. If the order did not meet the specified price, then the day order will expire as soon as the market closes.

The two types of day orders

Listed below are the two types of day order: stop day order and limit day order.

  • Limit day orders. In a trade execution, the price is more beneficial and favorable than the current market price.
  • Stop day orders. They are the opposite of limit-day orders since their prices are less favorable when compared to the market's current price.

Durations of orders

In trading, there are several types of duration a trader can choose from. When we say duration types, this is the length of time the order stays in the market before canceling. An order is subject to cancellation if there is no execution or trigger on that trading day. Day orders are not synonymous with other duration-based orders like the GTC orders and the IOC orders that traders can also use. If a trader does not or fails to specify if the order will have a different duration, then, by default, the order will be a day order. Due to this reason, most orders in the market are day orders.

GTC orders and IOC orders

GTC orders mean good 'til canceled orders. They will always remain in the market unless the trader manually canceled them; hence their name good 'til canceled. On the other hand, IOC means immediate or cancel orders. An order can either be filled in full or partial immediately. If the fulfillment of the order is partial, then the remaining parts will be subject to cancellation.

Advantages and disadvantages of day orders

Day orders are very convenient. Intraday traders can place multiple orders without the need to look after them from time to time as they execute automatically and simultaneously use their strategies. 

They only wait for the order to reach a level. When we say intraday, it refers to business hours.

On the other hand, traders will still need to learn about important events that can create negative market impacts. Since day orders just get canceled after a trading day when not triggered and are executed automatically, there is a tendency to be in a bad situation if the order is not canceled automatically before execution.

A scenario with a day order

After Lucia observed CM Company's shares, she assumed that their shares with a current $5 price would decline and rise after a little while. However, Lucia is also working as a full-time chef, and she does not have much break time since their restaurant is always. Lucia can't watch over CM Company's share status all the time. So, she decided to place a limit day order.

Lucia can work freely even after placing an order because it will automatically execute as soon as it falls at $4.50. She will have a long position when the price starts to have upward momentum. If her order does not reach her expected price decline, the order will only expire because there was no execution.
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