Time in Force is a stock investing term referring to the length for which a trading order is good. While casual or buy-and-hold investors may not use time-in-force stock limits, they’re an important tool for active traders.
Understanding different time-in-force options can help you close out more successful positions.
What Does Time in Force Mean?
Time-in-Force is a directive, set by a trader, that defines how long a trade will remain open or “in force” before expiring. Options traders and other active traders typically want to set an appropriate end date for trades to avoid unintended trade execution. This is especially true for investors employing day trading strategies and taking advantage of volatile market conditions with rapidly changing prices.
Recommended: Understanding the Risks of Day Trading
Basics of Time In Force
Before you place a Time-in-Force stock order, you’ll want to make sure that you understand exactly how they work. As with options trading terminology, it’s important to understand the language used to describe Time-in-Force orders.
Recommended: A Guide to Trading Options
Types of Time in Force Orders
There is no specific type of stock market order called “Time in Force”. Instead, the phrase refers to the collection of order types that set how long a trade order is valid, or “in force” in order to take advantage of investment opportunities. If you are considering a buy-to-open or buy-to-close order, you can also specify the time in force for either of those types of orders.
Not all brokers or dealers support every different kind of time in force order, but here is a look at several of the most common types of time in force stock market orders.
1. Day Order
This is the most common time-in-force order, and means the trade remains open until the end of the trading day. If your order has not been executed at the close of the day’s markets, it will expire. With many brokers, day orders represent the default option, and as such, this is the time in force order with which most people are likely familiar.
2. On-Open Order
Depending on the types of order that your broker or dealer offers, there can be two different types of time-in-force-on-the-open orders.
A market-on-open (MOO) order is an order filled when the market opens, at the prevailing opening price. With a Limit-on-Open (LOO) order, you can set a limit price for the highest price you’ll pay or the lowest price at which you’ll sell. If the market opens within the constraints of your limit order, it will be executed. Otherwise, your broker will cancel the LOO order.
3. Market on Close Order
A Market-on-Close (MOC) order is one that requests the sale or purchase of a security at the final closing price of the trading day. If your brokerage offers market-on-close orders, they will generally have a cutoff time by which you need to enter in any MOC orders.
Recommended: Buy to Open vs. Buy to Close
4. What Is Good ‘Til Canceled (GTC)?
As its name suggests, a good-til-canceled (GTC) order is a type of time-in-force order that remains in force until you proactively cancel the order or it is filled. Depending on the type of options strategy you’re employing, a good-to-cancel order can make a lot of sense, if you’re waiting for a moment in the underlying stock price. Many brokerages will restrict the number of days a good-to-cancel order will be open, often to 90 days.
Examples of Time in Force
You currently own 100 shares of ABC stock that you purchased at $20 per share. ABC stock announced earnings last night, and you’re considering liquidating your position. You’re not sure how the market will react to the earnings news, so you place a Limit-on-Open (LOO) order for $30 per share. If ABC stock opens at $30 or higher, your trade will execute, otherwise your broker will cancel it.
If ABC stock’s shares have been rising all day, but you expect them to open at a lower price, you might use a market-on-close order in order to try to sell at the high price at the end of the day. If you want to hold onto your ABC stocks until they reach $40 per share, you could set a good-til-canceled order to do so. Your order would automatically execute when shares hit $40, or it would expire after reaching your broker’s time limit for such orders, typically 90 days.
Time in Force Day Order vs On-Close Order
A Day order and an On-Close order are similar, but they have some important differences. A Day order is one that is good for the entire trading day, up to and including close. If you’re placing an order in the middle of the trading day and don’t care when it executes, this is the type of order you’d use.
On the other hand, an On-Close order (either Market on Close or Limit On Close) is only good at the close of the trading day. The intent of an On Close order is to execute at the final trading price of the day. If you place an On Close order in the middle of the trading day, it will not execute until the end of the trading day, regardless of the price throughout the day.
Using Time in Force Orders
How you use the different Time-in-Force orders will depend on your options trading strategy. Most buy-and-hold investors won’t use Time-in-Force orders at all, but if you’re using a more complex strategy, such as buying to cover, you may want to have more control over how and at what price your order is executed.
Start Trading With SoFi
Using time-in-force orders can help day traders execute on specific strategies and minimize potential offers. It determines how long a trade will remain open before being canceled. Most long-term investors do not use time-in-force orders.
If you’re ready to start options trading one way to get started is with SoFi’s options trading platform. This user-friendly platform boasts an intuitive design, and you can make trades from either the mobile app or web platform. Plus, there’s a library of educational content available for reference.
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