Good Till Cancelled

What is a Good Till Cancelled (GTC) Order?

A Good-till-Canceled (GTC) order is a type of trading instruction that remains active in the market until it is either executed or manually cancelled by the investor. Unlike day orders, which expire at the end of each trading day, GTC orders can remain in effect for an extended period, typically up to 90 days, depending on the brokerage firm's policies.

GTC orders allow investors to set specific price points at which they want to buy or sell a security without constantly monitoring the market. This makes them particularly useful for investors with a long-term perspective or those who want to take advantage of price movements that may occur outside regular trading hours.

For example, if you believe a stock currently trading at ₹1000 is overvalued and want to buy it when it drops to ₹950, you can place a GTC buy order at that price. The order will remain active until the stock reaches ₹950 or you decide to cancel it, whichever comes first.
 

What are the Pros and Cons of GTC orders?

Like any trading tool, GTC orders come with their own set of advantages and disadvantages. 
Let's take a closer look at both:

Pros

• Time-saving: GTC orders eliminate the need to place new orders daily, saving time for busy investors.
• Opportunity capture: They allow investors to capitalize on price movements outside regular trading hours or when they're not actively monitoring the market.
• Precise execution: Investors can set exact price points for their trades, ensuring they don't miss out on their desired entry or exit levels.
• Flexibility: GTC orders can be modified or cancelled at any time before execution, giving investors control over their trading strategy.

Cons

• Market risk: Because GTC orders can remain active for an extended period, there's a risk of execution at unfavourable prices due to sudden market changes or news events.
• Oversight required: Investors need to keep track of their open GTC orders to ensure they're still relevant to their current trading strategy.
• Potential fees: Some brokers may charge additional fees for GTC orders, impacting overall trading costs.
• Execution uncertainty: There's no guarantee that a GTC order will be filled, especially if the specified price is far from the current market price.
   

Good 'Til Canceled Order Examples

To better understand how GTC orders work in practice, let's look at a few examples:

• Buy Limit Order: Suppose you're interested in purchasing shares of XYZ Company, currently trading at ₹500. You believe the stock is slightly overvalued and want to buy it at ₹480. You can place a GTC buy limit order at ₹480, which will remain active until the stock reaches that price or you cancel the order.
• Sell Limit Order: You own shares of ABC Corp trading at ₹1200, but you believe it has the potential to reach ₹1300. You can place a GTC sell limit order at ₹1300, allowing you to automatically sell your shares if the stock reaches your target price.
• Stop-Loss Order: To protect your investment in PQR Ltd., currently trading at ₹800, you might set a GTC stop-loss order at ₹750. If the stock price falls to ₹750, your shares will be sold automatically, limiting potential losses.
   

Difference between GTC orders and other types of orders

While GTC orders offer unique advantages, it's essential to understand how they differ from other common order types:

• Market Orders: These orders are executed immediately at the best available price. Unlike GTC orders, market orders don't allow you to specify a price and may result in unexpected execution prices in volatile markets.
• Day Orders: These orders expire at the end of the trading day if not filled. GTC orders, on the other hand, remain active across multiple trading days.
• Fill or Kill (FOK) Orders: These orders must be filled immediately or cancelled. GTC orders can remain active for an extended period and may be partially filled.
• Immediate or Cancel (IOC) Orders: Similar to FOK orders, but allow for partial fills. Unlike GTC orders, which remain active, any unfilled portion is immediately cancelled.
   

The Risks of GTC Orders

While GTC orders can be useful, they come with certain risks that investors should be aware of:

1. Execution at inopportune times: Market volatility or sudden news events can cause a GTC order to execute at a price that may no longer be favourable.
2. Forgotten orders: If not monitored regularly, investors might forget about open GTC orders, leading to unexpected trades.
3. Price gaps: If a stock's price gaps up or down significantly overnight or during a market halt, a GTC order might be filled at a price far from the investor's expectations.
4. Opportunity cost: Having capital tied up in unfilled GTC orders might cause investors to miss other trading opportunities.
 

Conclusion

Good Till Cancelled (GTC) orders are a versatile tool in an investor's arsenal, offering convenience and the ability to set precise price points for trades. However, they require careful management and consideration of potential risks. By understanding the pros and cons of GTC orders and how they differ from other order types, investors can make informed decisions about when and how to use them in their trading strategies. As with any investment decision, aligning your use of GTC orders with your overall financial goals and risk tolerance is crucial.