Everything You Need to Know About a Day Order
A day order is an order type or an instruction from the trader to their broker to fill an order at the specified price or better during the trading day. What happens to the day order if the price does not reach the level entered by the trader? What is a good-for-day market order? What does “day” mean when buying stock? We will cover everything you need to know about a day order, explain how, if, and when to use a day order as part of your trading strategy, and discuss the pros and cons of using a day order.
Market participants must know the day order vs good until cancelled order difference to avoid unwanted positions and avoid an avoidable risk of trading losses. Brokers and trading platforms offer numerous order types, which benefit various trading strategies. Traders must use the most appropriate one for their trading strategy to ensure maximum profit potential and minimum risk, as we will explain below by covering the day order definition.
What is a Day Order?
A day order is usually the default order type in most trading platforms offered by brokers. It is an instruction to buy or sell an asset at a specified price. A day order is a limit order, as the price the trader wants is not yet available, sometimes referred to as a day limit order. Otherwise, it would be a market order the broker fills at the best available price the second a trader submits it.
The five most essential answers a trader needs to know about a day order are:
1. What happens to the day order if the price does not reach the level entered by the trader?
A day order is only valid during the trading session, hence the name day. Therefore, if the asset does not reach the specified price, the trading platform automatically cancels it. Day and intra-day traders favour day orders as day orders assist with order and inventory management. The trading platform cancels all unfilled orders at the end of the day without manual interference or confirmation by the trader.
2. What is a good-for-day market order?
A good-for-day market order is a limit order instruction the broker to attempt filling during the trading session. Should the order remain open by the end of the trading day, the trading platform will automatically cancel it and display it in the order history as "cancelled."
3. What does “day” mean when buying stock?
Each equity exchange has specified trading hours; "day" refers to the close of trading at the equity exchange where the stock trades. It excludes the after-hours trading session.
4. What is the difference between a day order and a good 'til cancelled order difference?
A day order remains valid during the trading session, and the trading platform automatically cancels all unfilled orders at the end of the trading session of each exchange where the asset trades. A good 'til cancelled order remains open until the trader manually cancels it. A day order is ideal for day and intra-day traders, while a good 'til cancelled order suits long-term investors who wish to keep an order open until the asset reaches the specified price.
5. What is the day order vs. Market order difference?
A day order is a limit order where the asset has yet to reach the desired price. A market order is an instruction to fill it at the best available price once a trader submits it.
How Does a Market Day Order Work?
A market day order allows traders to plan their trading day before markets open and manage multiple trades throughout the trading session without manual interference, monitoring, and confirmation.
Traders analyze assets and create a short list of what they wish to trade. Once markets open, traders will place day orders, which are either limit or stop orders and enter a set-and-forget mode, as the day orders instruct the trading platform on what to do.
A day order is a limit order if the desired price is above the current price and a stop order if the specified price is below the current price.
They can also include desired take profit and stop loss levels for risk management purposes and are the preferred order type for day and intra-day traders.
Why Do Traders Use a Day Market Order?
Understanding why traders use a day order will help understand their benefits and help decide if and when one is suitable.
Here are the reasons traders use a day order:
- Management of multiple assets throughout the trading session
- Time restrictions and inability to actively trade, monitor, and adjust orders
- Realizing potentially lower intra-day prices on buy orders with automatic cancellation at the end of the trading session if the asset does not reach the specified price
- Realizing potentially higher intra-day prices on sell orders plus the cancellation of unfilled orders without manual interference at the end of the trading session due to price action never reaching the desired price
When Should Traders Use a Day Order?
Knowing when to use a day order is equally crucial to the profitable outcome as the trading strategy and asset selection.
Here are scenarios when traders may consider using a day order:
- When they lack time to monitor and place orders actively during the trading session
- When they believe intra-day price action will yield a more beneficial order entry opportunity for buy and sell orders
- When they consider assets moving in a tight trading range with well-established and confirmed support and resistance levels
- When they want to deploy a swing trading strategy
How Can Traders Incorporate a Day Order into Their Trading Strategies?
Using a day order depends on the individual trading strategies and preferences, but below is an example of how a trader can use a day order:
- A trader analyzes numerous assets and creates a short-list
- When the markets open, a trader places day orders for all desired assets
- The trading platform will trigger and fill orders if price action reaches specified prices
- The trading platform will automatically cancel all orders without manual confirmation at the end of the trading session
The Pros and Cons of Using a Day Order
Before using a day order, traders must weigh the pros and cons to understand if their trading strategy can benefit from a day order or if the negatives outweigh the trading approach.
The pros of using a day order are:
- Ability to plan a trading day without the need to monitor price action
- Managing multiple assets and placing orders when markets open
- Realizing more favourable intra-day prices for buy and sell orders via day-stop orders and day-limit orders, respectively
- Placing the desired take profit and stop loss levels for risk and order management.
- Automatic cancellation of unfilled orders at the end of the trading session
The cons of using a day order are:
- Inability to react to unexpected moves in price action
- Vulnerability to getting an order filled at unfavourable prices due to slippage
Day Order Conclusion
A day order allows traders to plan their trading day, manage multiple assets, and capture potentially more favourable intra-day prices for buy and sell orders via stop and limit orders, respectively. They are ideal for day and intra-day traders who lack time to trade actively or for swing traders trading within well-established pivot points.
FAQs
When can’t you use a day order?
Traders cannot use a day order during pre-hours or after-hours trading, as it is only available during the regular trading hours of the exchange.
Is there a difference between day orders and good 'til cancelled orders?
The day order vs GTC (good 'til cancelled) is that a trading platform automatically cancels all unfilled orders at the end of the trading session. A GTC order requires manual cancellation by the trader, or it will remain open until filled or cancelled, which can take days or more, depending on market conditions and the parameters of the order.
When are day orders available?
Day orders are available during regular trading hours of the exchange.
Are there any risks of using day orders?
There are no risks when using day orders, as the trading platform cancels them at the end of the trading session. Market risks always exist, and price action may move notably past the specified price, which can result in slippage or an unfavourable entry price, which is not the fault of the order type but depends on the trader and analysis of market conditions.
Market order or day order?
It depends on the trading strategy. A broker will fill a market order at the best available price after receiving it, meaning it remains open for fractions of a second in most cases. A day order allows a trader to place a limit order for an asset at a better price than currently available or an automatic cancellation at the end of the trading session.
What is a day order in English?
In simple English, a day order is an order to buy or sell something, but the order can only be executed today. After the end of the day, the order will automatically be cancelled if it has not been executed.
How long is a day order good for?
A day order is good until the end of the day.
Is a not-held order a day order?
Yes, it is a day order and a buy or sell at market order.