In this post, we will cover the order types based on time. It can be the duration of time for which an order remains valid (Day Order, GTD Order, GTC Order, IOC Order, FOK Order) or the duration of time for which you can place the order (AMO, Pre-Market Order, Post-Market Order). These types of orders in the stock market are usually used in combination with the order types based on price. You may not use all these orders, but a sound knowledge of them can definitely help you under certain circumstances.
There are some vital comparisons between some of these order types which I have discussed in this post. Continue reading to know them.
This order type is valid only for the day on which it is submitted. If this order doesn’t get executed, it gets automatically canceled at the end of that trading day.
The day order may be a limit, market or stop order.
The day order has a more specific version. The MIS (Margin Intraday Square-off) Order. This order type is more significant for intraday traders.
A trader uses a day order when he wants either to enter or to exit a trade on a particular day. But he will choose the MIS order when he wants to both enter and exit the trade on the same day. So, Day Orders are normally used for Delivery-based trading, whereas MIS orders are used strictly for Intraday trading.
Discount brokers like Zerodha and RKSV name it as “MIS” (Margin Intraday Square-off) order, whereas other brokers may name it something else. Be sure to check the correct order type with your broker.
Why is the “MIS Order” type so crucial for intraday traders?
Intraday traders open a position (enter a trade) and close the same position (exit the trade) within the same day. They don’t hold the positions overnight to avoid any gap down or gap up opening on the next day.
If you select the MIS order type for entering a trade, then the automated system of your broker will automatically close all your open trades within the same day, usually after 3:15 pm. This saves you from any unintentional mistake, like forgetting to cover open short positions at the end of the trading session. So, the MIS order prevents many traders from paying big penalties.
The Day order doesn’t get automatically squared-off at the end of the trading day. So, if your intention is to trade intraday, then make sure to close such open positions before the end of normal trading hours. However, if you want to hold the shares for long-term then you do not need to close the open positions. The shares will be transferred to your Demat account.
GTC (Good Till Cancelled) Order
This order type will remain in the system as long as it is not canceled by the trading member.
However, the stock exchanges set the maximum duration from time to time, after which the GTC order will be automatically flushed out of the system. This duration can vary from 90 days to 365 days from the order placement day.
Currently, this order type is available only for the Equity segment. It is not available for Futures & Options (F&O) segment. Some brokers may not provide this order type. Before placing such an order, it’s a good idea to confirm the maximum validity (in number of days) from your broker.
A GTC order can’t be a market order. If it was, then as soon as you placed the order, it would have got executed immediately. So, a GTC order is always a limit order and you have to specify the limit price while placing it. As long as the stock price doesn’t hit the limit price your order will remain in the system. If it doesn’t hit the limit price before the maximum validity as decided by the exchange, then will it get canceled automatically.
GTD (Good Till Date/Days) Order
Unlike a GTC order, a GTD order already has a pre-defined validity (which is decided by you and not the exchange). It can be the total number of days for which you want the order to be in the system, or, it can a specific date, after which this order will get canceled. The number of days you specify will be calendar days and will include holidays and also the day the order is placed.
A GTD order is also executed at a limit price. So, if the stock price doesn’t hit the limit price before the order expiry date, it will get automatically get canceled on the expiry date.
But why should you choose a GTD order over a GTC order?
If you choose a GTC order, then you won’t have to worry about the order expiration.
But what if you know that some big event will occur on a particular day?
You will certainly not want to trade on a bad day and find yourself suffering massive losses. This is where a GTD order can help you. If you are risk averse, then you will try to exit your trades before such a big event. So, if you had a GTD order in place valid till one day before the big event, then you can be sure that it won’t get executed on the day of the event. If your GTD order gets executed on the last valid day, you can exit the trade before the close of the trading hours on that day itself.
But if you have a GTC order which you forgot to cancel before the big event, then it may get executed in such a situation which you didn’t want to face. This doesn’t mean that you should always use a GTD order over GTC order. It depends on your personal trading style.
IOC (Immediate or Cancel) Order
Immediate or Cancel Orders should get executed either partially or fully as soon as it is released into the market. This order stays in the system for a few microseconds after which it gets canceled automatically.
Let us understand this with an example.
Suppose, you have placed a ‘buy market IOC order’ for 100 shares. When you release this order into the stock exchange there are only 70 shares available. So, 70 shares will be purchased immediately. The buy order for the remaining 30 shares will get canceled. So your order will get partially filled. But it saved you from slippage costs.
This order type is useful when you don’t want to pay even a single penny more than the price at which you want to buy.
You can combine an IOC order with either a limit, market or stop order. In the above example, I have combined the IOC order with a market order. If you want a more favorable price you can place a “limit IOC order”. Limit IOC order won’t get executed as long as the limit price is not hit.
FOK (Fill Or Kill) Order
It is just an upgraded version of the IOC order type. The FOK order must be executed immediately in its entirety. An IOC order type can get filled partially but a FOK order type must be filled entirely. The whole order will get canceled even if there is a partial match.
The pre-market order is not a special type of order. It can be either a limit order or a market order (I have already discussed limit and market order types in my previous post: Stop-Loss, Market, and Limit Order – Stock Market Order Types: Part-1).
So how is a pre-market order different from a limit or market order?
The normal trading session extends from 9:15 am till 3:30 pm. However, the pre-market session duration is 15 minutes. It starts from 9:00 am and ends at 9:15 am.
You can enter, modify and cancel orders from 9:00 am to 9:08 am. From 9:08 am to 9:12 am the orders get matched and the trades are confirmed (as per the directives of SEBI). During these four minutes, you can’t enter, modify or cancel any order. This order matching is done to decide the opening price for the normal trading session for that day.
The last three minutes, from 9:12 am to 9:15 am, is just a buffer period to transit from pre-open session to normal trading session. All the limit and market orders placed during the first 8 minutes of the pre-market session are pre-market orders.
The Post-Close Session (or Closing Session) was introduced on 16th June, 2003. It opens at 3:40 pm and closes at 4:00 pm. In this session, you can place only normal market orders, that too, only in the equity segment.
These market orders placed between 3:40 pm and 4:00 pm are post-market orders.
Any outstanding order which didn’t get executed during the normal trading hours (9:15 am to 3:30 pm) will remain outstanding in the post-close session. These orders won’t get executed. You can’t modify these outstanding orders in the post-close session, but you can cancel them.
The Post-Market order can be risky as the stop-loss order is not allowed in this session. There are a few more orders (like Index orders, Disclosed Quantity orders) that are disallowed in this session.
AMO (After Market Order)
After Market Orders are mainly used by those who can’t trade the markets actively. This order type is useful for professionals who remain busy in their day jobs but still want to participate in the stock market. It can be a limit, market or stop order.
AMOs are accepted by brokers after the close of Post-Market Session. Brokers usually allow AMO from 4:15 pm till 9:00 am. However, some brokers may have slight variations for this AMO placement duration window. Check with your broker to know the correct window for placing an AMO.
After Market Orders are available for all market segments (Equity, Currencies, Commodities). The timing for the different market segments may vary. Technologically advanced brokers allow AMO for commodity segment any time during the day.
Depending on your broker, you can place an After Market Order as a Market Order, Limit Order or Stop Order.
After Market Orders are retained in your broker’s system till the start of normal trading hours. All the accumulated AMO’s are sent to the stock exchange on market opening and hence, may take a few seconds to get placed.
Since this order type is not placed in an active market, you should place Limit AMO to reduce slippage when your order actually gets executed on the next trading day.
I hope this post helps you in choosing the correct order type in the right situation. Depending on your existing work schedule you may have more than one choice. Sometimes, it takes a while to understand which order type suits your needs. So, choose wisely.
I would love to know what your favourite order type is, and why, in the comment section below?
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In my next post, I will discuss the combined order types and order types based on quantity. So stay tuned.