Trade orders refer to the instructions given to a brokerage firm or broker for selling or purchasing a security on behalf of an investor.
Orders are the basic trading units in the securities market. These are usually placed online or over the phone through the trading platforms. Nowadays, algorithms and automated trading systems have made it even easier to place an order.
The term time in force (TIF) refers to the duration of an order, and it is immensely valuable in day trading.
On that note, here’s outlining what TIF is and how it can come to your aid in day trading. Let’s get started!
What Exactly Is Time In Force?
Time in force is the measure of the amount of time spent executing an order before it ends up expiring. In other words, TIF shows the duration for which an order stays active before it gets expired with the broker.
TIF is also the special directive that the investors or traders implement while placing trades for stocks or any other financial instrument. Due to this reason, TIF offers investors or traders a way to control the time for a specific trade.
You might be working with a wealth management firm to handle your finances, but it still helps to know the terms like time in force and popular asset management tools such as Alpaca.
In most of the markets, you will commonly get single price auctions occurring right at the start and end of the regular trading period. These are single priced as they need to be completed at the same price in terms of the transaction of the orders.
For the orders mentioned on the closing or opening of the share market, they get included in auctions that have zero effect.
When joined with the price directives, it can lead to limit on the open, market on open, limit on close, and market on close.
Different Kinds Of Time In Force Orders & Their Uses
Time in force orders are of various kinds. Most of the brokers use the acronyms like GTC, FOK, and LOO, and so on to refer to the different types of time in force orders.
Understanding each of these will give you a better idea of using it to your advantage.
1. Day Orders
The most popular kind of time in force order is the day order. These orders get canceled in case the trade does not get executed within the current session on the trading day.
Day orders are usually the default type of order for most brokerage accounts. It only includes orders that occur after 9:30 a.m. or before 4:00 p.m. ET.
2. Good-Till-Cancelled (GTC)
GTC remains effective until that trade gets canceled or executed. Some of the common exceptions are modified orders, account inactivity, distributions, stock splits, and quarterly sweeps.
These are useful for a long-term trader who is ready to wait for the stocks to reach the coveted price point before they pull the trigger. At times, the traders can be ready to wait for a couple of days or weeks to let the trade get executed at the price that they wish.
3. Fill-Or-Kill (FOK)
These are another type of TIF orders that the traders frequently use. FOK gets canceled when the complete order does not get executed whenever it is made available.
There are times when these are useful in avoiding the purchase of shares in multiple blocks at separate prices. They are also helpful in ensuring that the entire order gets executed at one price.
4. Other Types Of TIF
There are other kinds of TIF orders available as well, such as Limit-on-Open orders and Market-on-Open orders that execute right when the market opens.
The immediate-or-cancel orders have to be immediately filed, or they get canceled. The day-till-canceled orders get deactivated when the day ends, but they are not canceled, so it is easy to re-transmit these orders later.
How Can Time In Force Come To The Aid Of Day Traders?
You must already have an idea about the use of time in force for day traders by going through the types in the previous discussion. It’s time to know the details of the usefulness of time in force.
1. No Need To Cancel The Old Trades
The time in force orders comes as a handy way for the day traders to keep away from the accidental execution of the trades. After setting the time parameters, the traders do not need to remember about canceling the old trades.
Unintended execution of the trades can be costly. This is especially true when such execution occurs in volatile markets under rapidly changing price points.
2. A Way To Control The Prices Paid
Most of the active traders also use limit orders for controlling the price paid for the stocks. This means that the traders set time in force options for controlling the duration for which the order remains open.
3. Different Types Of TIF For Different Needs
The day orders constitute the most popular type of orders. However, there are situations where using other types of orders makes more sense.
For instance, FOK can be a popular choice in the fast-moving markets where a day trader needs to make sure that they secure good money on the trade.
Day traders can also resort to other kinds of TIF orders based on their needs. Though some brokers offer only limited order types, you will get more options if you’re an active trader.
The Bottom Line
Your success in the world of trading depends on the implementation of smart strategies. Time in force comes with a specific set of instructions that makes it a handy tool for any day trader.
By selecting one among the many types of time in force orders, you will not need to monitor the trades for the entire day.
Your trades will get executed or canceled depending on the particular date and time. Thus, it is a convenient way to attain success for both investors as well as traders.