What is a Day Order?
Let me explain what a day order is. It's a stipulation you place on an order to your broker to execute a trade at a specific price, and it expires at the end of the trading day if it doesn't go through. You can use a day order as a limit order to buy or sell a security, but remember, its lifespan is strictly limited to the rest of that trading day.
Key Takeaways
- Day orders are limit orders to buy or sell securities that are only good for the remainder of the trading day on which they are placed.
- If the trade isn't triggered, the order goes unfilled and is cancelled at the end of the session.
- Traders have the option of using other durations, but most limit orders tend to be day orders.
Understanding Day Orders
You need to know that a day order is one of several order duration types that decide how long your order stays in the market before cancellation. For a day order, that means one trading session. If your order isn't executed or triggered on the day you place it, it gets canceled. Compare this to other types, like the good 'til canceled (GTC) order, which stays active until you manually cancel it, or the immediate or cancel (IOC) order, which tries to fill all or part of the order right away and cancels whatever remains if it can't be done.
On trading platforms, day orders often act as the default duration. This means if you don't specify a different time frame, your order automatically becomes a day order. That said, day traders use various order types, but since it's the default, most market orders end up being day orders.
Using Day Orders
Day orders are especially useful when you want to order a security at a specific price without having to watch it all day for the perfect moment to execute. This lets intraday traders handle multiple securities at once, which is standard practice. Before the market opens, you analyze your securities and place orders based on your strategies. Then, as the day progresses, you act on the executed orders.
Many intraday strategies require exiting positions before the close of the market. So, if an order isn't filled by day's end, you cancel it. Day orders handle this automatically, which is why intraday traders prefer them.
Watching Day Orders
Day orders can cause stress for investors who aren't professional traders. If you're not keeping an eye on the security's price during the day, your day limit order might execute without you knowing. For instance, if you place a day order to sell and the security suddenly drops in price unexpectedly, the order could go through before you realize, resulting in a larger loss than anticipated. In that case, the loss would happen anyway, but you might have decided to hold instead of selling at a loss, depending on the reason for the drop. As a rule, stay attentive to the market when you have active orders.
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